Well, it’s that time again. The beginning of a new year, when people all over the world make a resolution to get their debt paid off once and for all.
Are you one of those people?
Or maybe you’re someone who made this resolution in years past but just weren’t able to manage it? (I’ve been there, and trust me – I know how tough it can be!)
If you’re struggling with getting your debts paid off and want to make this the year it actually happens, there’s a simple way to get started. It shouldn’t take more than an hour, probably a whole lot less.
It may even sound so simple that you’ll think “that’s obvious, why am I even reading this?”
Just trust me and go through the exercise. You might just be surprised what you find.
The exercise you need to do is to compare your monthly spending with your monthly income. (See, I told you it was simple and obvious.)
Prepare to be surprised. Most people don’t realize how much they spend compared to what they actually earn if they’ve never done this exercise before. You might just find that you’re using credit to finance a lifestyle that is really beyond your means.
That’s a proven route to the poorhouse.
If this is true for you, the only way you’re going to get your debt under control is to start spending less. It sounds simplistic, and I’m certainly not saying it’s easy, but the frank truth of the matter is if you don’t stop financing your lifestyle with credit, you’re not going to get ahead.
You can learn more about how to pay off your credit card and other credit card tips by poking around the website a bit.
Stay tuned for more tips and ideas about paying off your credit card debt.
[widget:ad_unit-1221255277]This may be the most controversial aspect of consumer debt relief: debt settlement companies. There are definite differences between debt settlement companies and other debt relief companies. Let’s examine some of these differences.
A debt settlement company is one who says it will intercede on your behalf with your creditors to reduce your debt 50-75%, or "settle your debts for pennies on the dollar". Debt settlement companies can’t guarantee this, nor will they even attempt it without having you pay them a hefty fee, sometimes as much as 15-20% of the total amount of debt you’re trying to rid yourself of in the first place. Let’s do a little math here…$25,000 total debt, $5000 fee to debt settlement company, and no assurance that the lenders will even go for this, all the while your credit is taking a near-fatal hit.
A debt management firm, on the other hand, or a non-profit credit counseling service works to lower the interest rates on your account with the goal of reducing the monthly payments you’re now saddled with. Paying more toward the principal instead of interest charges reduces your debts by years. Most times you can tell the difference between debt settlement companies and debt management companies by the fees and time it takes to start satisfying creditors. (Do be aware that many predatory debt settlement companies claim to be non-profit, so do your due diligence, and check them out with the Better Business Bureau, etc.)
There are many horror stories associated with debt settlement companies out there. Let’s look at some of the facts about them. First of all, no lender is under any obligation to reduce your indebtedness to them to any degree. If you were to approach them on your own when things get bad, you are far more likely to secure a better result. Your creditors won’t see a dime until you’ve accumulated enough to pay them a settlement, which could be some time down the road. You’ve paid your fee to the debt settlement company, and now you’re collecting money in this account in hopes of making a one-time settlement payment. In the meantime, no payments are being made to your creditors, who are dutifully reporting this to the credit agencies, thus further worsening your credit report. A full 35% of your FICO score is calculated on the timeliness of your payments, which you’ve suspended for the foreseeable future. Also, even if this scenario were to work out for you, the difference between the amounts you owe and the settlement amount will be a taxable event, possibly wiping out a large portion of what you think you may have saved!
And one more bad thing: despite claims to the contrary, they can’t really stop the phone calls. You’ll simply be referring them to debt settlement company, which will do you no good.
As you may have guessed by now, it would be very wise to avoid debt settlement companies and choose another alternative. Anything they can do you can do better, and cheaper!
[widget:ad_unit-1221255277]One of the most common techniques for getting cash to help with credit card debt reduction is by tapping into the equity on your home. While this may be spending some of the profit you’ve hoped to make on your biggest investment, your home, it may well be the best choice among several other poorer ones. There are several things to bear in mind, however, as you consider whether a home equity loan or home equity line of credit (HELOC) would be right for you. Let’s look at some of those now.
First, some definitions: a home equity loan is an installment loan, just like your first mortgage or your car loan. You get a lump sum, and you pay this back according to a schedule, usually with fixed rates and payments. A HELOC on the other hand, is really more like another credit card than a home loan. You are set up with an account with a credit limit you can borrow from whenever you desire. You don’t have to have the entire amount allocated and costing you interest from the beginning. Rates are variable, and usually tied to the prime rate
Typically, a home equity loan is used for things like major home improvements, or to finance unplanned for events. What is becoming more and more in vogue these days however, is the practice of tapping a home equity loan for frivolous uses, because it’s easy to get, and there are no sources of other "fun" capital to play with. Not only is this dangerous to your ultimate state of wealth, but if you were to blow through this asset it may not be there when it’s actually needed. Some wisdom is required in knowing just when to use this. If you’re going to use this to pay down or off credit card balances, then do yourself a favor and make sure you don’t repeat the disaster.
When shopping for a home equity loan or HELOC, there are some tips you’ll want to remember, and the first of these is to go shopping! Don’t sign the dotted line with the first lender you call, unless of course you’re looking to be relieved of a lot of money! Rates will vary from company to company, and having lenders compete for your business is a good thing! Don’t ever be made to feel as though they’re "doing you a favor", and you won’t be able to find terms as good as these elsewhere. Yes you will.
This kind of shopping is especially good for your loan when it comes to fees. Make sure the lender isn’t tacking on any junk fees. If you have okay credit, you probably can get out of appraisal, application, and broker fees. Even if you don’t have great credit, all this is negotiable if they want your business.
A home equity loan or line of credit can be a good vehicle for addressing credit card debt. It can turn taxable debt into tax-deductible debt, and get you a fresh start. Just be sure and count the cost before you sign away any equity!
[widget:ad_unit-1221255277]The Snowball method of debt reduction was so named by Dave Ramsey, a very savvy and popular personal finance guru, and the truth is, the Snowball Method just plain works! No matter how much debt you’re talking about, no matter what the interest rates, the Snowball Method gives you a framework for paying down all that debt you’ve accrued over the years, and providing some hope for those of us who find themselves debt-strapped. Perhaps that is the best part of the Snowball Method: the satisfaction and hope that’s suddenly a part of your life again seeing your finances headed in the right direction. There may be ways that make this happen faster, and we’ll take a look at that in a second, but the basic Snowball Method is a great place to start!
The basics are these: list all your debts in ascending order, from lowest amount to the largest. Make sure to pay the minimum payment on all of these, except the smallest debt. To this one we apply any and all available funds, (which had better be more than the minimum payment, or we have something else to talk about) and knock this particular debt down to size fairly quickly. Once that debt is retired, you start on the next biggest obligation, and work your way up the ladder. The important thing is that once the first debt is gone, you take the money you were applying to the first one, and add it to the minimum you were paying on the next highest debt. This is really the only way it works. You have to be disciplined to "snowball" your payments this way, until all the debt you want to go disappears.
The basic advantage of this method, besides the obvious benefit of paying down the debts systematically, is an undeniable psychological aspect to seeing these debts dispatched one by one. You feel better about yourself, your self-esteem gets a shot in the arm. If you are feeling better, you’re a whole lot less likely to make poor, emotionally based financial decisions. ("I’ll just put this on the credit card, I deserve it.")
One drawback to the Snowball Method is that it doesn’t really take interest rates into account, and by using this method, you will pay more in interest over the life of your loans. This is because two debts; one of $1,000 and one of $10,000 may share the same interest rate, but by paying of the smaller one first, the larger one keeps accruing larger amounts of interest. You can switch up the order of the debts you repay first, by highest interest rates, but this has proven harder for some people to accomplish. The time it takes to retire a larger debt is often too much strain for some people, and they are better off paying more money in the long run.
The Snowball Method has its advantages. It can play a vital role in a sensible debt reduction strategy.
[widget:ad_unit-1221255277]If you’re like many Americans who find themselves further and further ensnared by the credit card debt trap, take heart in knowing that you’re not alone, and the road has been traveled before. There is a way out. It may not be quick, or as easy as many of the advertisements will have you believe, but there are proven ways to get you out of this mess you’ve come to find yourself in. We’re going to take a look in the next few segments at five specific ways for reducing credit card debt. These aren’t the only ways, but are the most popular and easiest ways you may find to pursue. Let’s look at what we’ll examine.
Debt Consolidation Loans – Are debt consolidation loans really all they’re cracked up to be? What are some the hidden traps and things they don’t tell about these kinds of loans? Will you pay more or less? How does this affect your credit scores and long term financial health? We’ll look at this type of instrument in Part 1. Is this really an answer or more fuel on the fire?
The Snowball Method of Debt Reduction – This simple, yet powerful method of credit card debt reduction is based on the concept of listing all your debts from smallest dollar amount to largest, and then paying off the smallest first, then applying that payment to the next one on the list. While this requires some discipline, it does work. There are some issues to consider with this method, and we’ll look at those in Part 2.
Home Equity Loans or Line Of Credit – These might well be your best bet if you’re a homeowner with some decent equity in your home. Even in the midst of a real estate slowdown, it can be easy to tap the equity in your home. There are some potential pitfalls to be aware of, however, and we’ll cover these in Part 3 of the series. This step should not be taken willy-nilly though, as your home is usually the single biggest asset you have, and you want to not get in trouble here if you can help it.
Negotiating Better Terms With The Credit Card Companies- This is doable, as the last thing they want to see is you defaulting on all this money you owe them. There are some ways to go about this smartly, however, and we’ll discuss this in Part 4.
Debt Settlement Companies – You’ve seen the ads everywhere, tempting you to let them help you slash your credit card bills by up to 60%, and rid you of this hassle forever! What do you think? Sound good? A little too good? We’ll wrap up the series with a look at this practice in part 5.
The good news is you’re looking to reduce your credit card debt. Let’s just find the best way for you to accomplish this without doing any more damage!
