Getting Out of Debt in 10 Easy Steps
If you are like most people nowadays, pulling out a credit card for your
purchases is not an uncommon occurrence. What is uncommon is being able to
actually pay for your purchases when the bill comes.
Large debt can be depressing. It can also decrease your worth and ruin your
credit. And it could cost you much more in the long run than the worth of the
things you buy.
That is why you need to get rid of your debt, and soon! Don't wait. The sooner
you pay off those bills, the sooner you will be able to keep that extra
18-22% interest your creditors are making off your careless ways.
Here are ten easy ways to stomp out debt:
1. Never Pay the Minimum
The minimum payment is the creditor's minimum requirement, it is not a good
guideline for those who want the debt to disappear. Paying just the minimum
will lengthen the time you have to keep paying-and how long do you really
want to pay for that dinner out on the town or last month's gas? The best
plan is to pay at least double the minimum. Pay more if you are able.
2. Pay Off the Toughest First
Some creditors will charge you higher interest than others do. Focus on them
first. The faster you can pay off the high interest rate bills, the faster
you will eliminate those higher interest fees.
3. Move Balances
If paying off a higher rate isn't possible, try transferring your balance to
a card with a lower balance. However, beware! Many cards have a low,
introductory rate for transfers that are good for a short time only. If you
do transfer a balance, be sure to find out how long the low rate lasts and
pay the debt off within that time frame.
4. It's Better to Pay than Save
Yes, we would all like to have money in the bank, but it's more important in
the long run to pay off your debt than save. Cash out your savings account to
pay off your debt. The next month, you can take all the money you will be
saving on those credit card bills and repay your savings account. You will
make more money in the long run with this plan. If it makes you feel better,
you can keep a SMALL cushion of money as a safety net in case of emergency.
5. Cash In
If you have life insurance or a mutual fund (or other financial investment),
you may want to consider cashing it in to free up funds to pay off your debt.
Look at the penalties for cashing out and calculate the rate of earning for
the account versus the interest rate owed. This will help you determine
whether cashing in is worth it.
6. Borrow from Your 401(k)
If you participate in a 401(k) at work, you may be able to borrow up to 50%
of your account or $50,000 (whichever is lower). You get a lower interest
rate, and the interest you repay with the principal actually goes into YOUR
401(k). In a sense, you pay interest to yourself. Who can beat that? The
caveats? You have to repay in five years or less and you must pay in full if
you leave your current employer. You pay it back with after tax dollars as
opposed to the before-tax dollars that originally went into the fund.
7. Call on Dad
Sometimes family can help a lot. If you have a relative who would be open to
a hand-out or low-interest loan, TAKE IT! Trading in a high interest bill for
a low-interest loan is always a good idea. If your new creditor is family,
it's even better. They will understand your need to take time repaying and
likely respect your current financial situation.
8. Own Your Home?
If you have equity in your home, you may qualify for a home equity loan. This
is a good idea if your debt is sizable. It also makes sense because you get
two benefits: 1) you get to trade in a high interest rate to a low one, and
2) you can deduct the interest on the home equity loan on your taxes. The one
caveat to this type of loan is that your home is now the collateral. Neglect
these payments or default and you could lose your home!
Everything is negotiable, or nearly everything. Many creditors will discuss
lowering your interest rate in order to get a payoff. If you call your
creditor and tell them you cannot pay, they may help you out. It's amazing
what a little threat of bankruptcy can do. Of course, don't use this tactic
if you can use any of the previous 8 steps. It is a drastic measure and
should be used as a last resort only.
10. The Last Resort
Of course, the real last resort is actually filing for bankruptcy. This
clears you of all debt. However, this wiping the slate clean comes at a high
cost. Be sure to talk to a financial advisor or attorney before taking on
such a drastic step. There may be other ways for you to find your way out of
Source: Smart Consumer Services www.SConsumer.com