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The average American carries approximately $6,375 in credit card debt. For many, the stress associated with trying to pay off this high level of debt is significant.
If you find yourself in the group of people stressed about how to go about paying off credit card debt, you will be happy to learn there are some tips and tricks you can use. While your debt may seem insurmountable now, with time, effort, and dedication, you can get out of debt for good.
If you’re ready to learn what steps to begin taking, keep reading.
Are you carrying a balance on more than one credit card? If so, you need to make sure you are always paying the minimum required on each.
However, don’t stop there. Once the minimums are paid, you need to concentrate on paying down the balance on each card. Be sure you choose one card to focus on at a time.
You can choose the card with the highest interest rate to pay off first, or the one with the smallest balance. Both of these strategies are effective but choose the one that works for you, and then stick with it.
If you want to get out of credit card debt and stay out of it – for good – you have to take some drastic steps. One of these is to destroy the cards.
Regardless of what you think, there is no such thing as responsible credit card use. There is no good reason to keep these cards around, especially the department store cards that would not even be helpful in an emergency situation.
While this step may sound somewhat drastic, it’s the only surefire way you won’t get right back into credit card debt once you have paid everything off.
Another option is to consolidate your debt. You can combine several of the higher-interest balances into a single payment. In most cases, the transfer fee is going to be three to five percent, but you can compensate for this with the savings you are going to see from the transfer.
If you have any equity in your home, you may be able to use that to pay down your credit card debt, as well. Home equity lines of credit often provide a lower interest rate than what the typical credit card charges.
It’s important to understand that closing costs will apply. However, the benefit is that the equity interest payments are usually tax-deductible.
If you choose the consolidation path, remember, you need to control your spending. This can help you avoid accumulating new debt, along with the debt that’s just been consolidated.
If you are planning to pay off and destroy your credit cards, then you still need to ensure you have some type of safety net for emergency situations. This is where an emergency fund comes in.
Building an emergency fund can take some time, but it will also be valuable if you encounter an unexpected expense or some type of income disruption. All you have to do to create an emergency fund is put a little back from each of your paychecks. By doing this, you can avoid missed payments and the need to use a credit card in the future.
You need to get a handle on your budget and make sure you fully understand what it is and how you can make the most of it. For example, top priorities should be transportation, groceries, housing costs, and entertainment.
A great way to begin this reorganization process is by looking at your credit card statements, as most issuers categorize your spending.
Be sure you scrutinize this information closely. Find areas where you can cut back how much you are spending. Then take the money that you have “found” and put it toward paying down the debt you have.
If you are like most people, you didn’t get into credit card debt overnight. As a result, you are aren’t going to be able to get out of it that quickly either (unless you find a windfall of some sort).
Be patient and continue on the path to living a debt free life. While this is bound to take some time, in the end, it will be well worth it, and you will be in a position to take charge of your finances and finally achieve the financial freedom that you want and need.
There’s no question that paying off credit card debt is something that takes time. However, it’s possible when you use the right tactics and rely on the right information.
Be sure to use the tips and information found here, as they’re going to help you on your journey to financial freedom. You may also want to reach out to a financial advisor, who can provide you even more information on how to best manage your finances to remain debt free.
If you are ready to take control of your finances, rather than letting them control you, we can help. Our team can provide the information you need on any finance related topic. For example, we have a recent blog on how to take the pain out of monitoring your finances.
Stay tuned to our blog for more insights.
Did you know that Americans now have more debt than ever?
In fact, this debt amounts to a hefty $13 trillion–and this number is likely on the rise.
Debt can sneak up on all of us, especially given life’s range of expenses. Student loans, vehicle financing, and mortgages may grant education, mobility, and home ownership, but they still all equate to debt.
Luckily, if you are struggling with debt management, there are options. One of these is debt consolidation.
How does debt consolidation work, and is it right for you? In this post, we answer these questions and more.
Keep reading for insight!
Most people accrue debt from a variety of sources. You may, for example, have credit card debt in addition to an auto loan or home mortgage.
This is very common, and it’s not necessarily a problem. It is possible to have “healthy debt” if you are a responsible borrower and if you can comfortably make your monthly payments.
Yet healthy debt can be hard to come by. Plenty of loans have high-interest rates, which can quickly get burdensome and keep you from saving what you need to be saving!
A lot of people also juggle multiple monthly payments. It can be tough to meet these, especially if you’re living paycheck to paycheck. (In fact, most Americans do!)
Unexpected situations such as family emergencies or medical expenses can be an additional challenge. These can add more to your debt and stress levels.
If you find yourself missing payments on any of your loans, you may face late payment fees. Credit card balances are also subject to potentially high-interest rates.
Debt consolidation strives to alleviate the stress of these potential situations. When you consolidate your debt, you lump your debt into one, single loan. This results in just one monthly payment and–in most cases–less interest due.
Debt consolidation sometimes sounds too good to be true. How does it work?
First, it’s important to note that there are, in general, two ways to consolidate debt: with a credit card balance transfer or a debt consolidation loan.
Both of these have the same goal, which is to get all of your debt into one monthly payment. Plus, they also strive to reduce interest and fees.
For people with a lot of credit card debt, this is a great means of consolidating. Users simply transfer all of their debt to one credit card. They must then pay off this balance within a given time frame.
Most people will seek out new cards that offer a 0% balance transfer APR and/or a $0 balance transfer fee. Plenty of credit cards offer these terms!
These terms mean that balance transfers won’t be subject to any fees. Once you transfer a balance, you won’t have to pay interest on that balance for a given period of time (sometimes up to a year).
If you aren’t eligible for such offers for any reason, have no fear. You can always transfer your credit card balances. These, however, will be subject to APR and/or transfer fees according to your card’s terms.
For this reason, identify your card’s balance transfer terms before you make a decision.
Another way to consolidate your debt is to take out a debt consolidation loan.
With this, borrowers take out a loan valued at their total debt. Generally, this loan is fixed-rate, meaning that its balance will have the same interest rate for the entire repayment period.
With this debt consolidation loan, borrowers pay off all of their existing debt. They will then work on repaying that loan in a given amount of time, generally at a lower interest rate.
Debt consolidation loans are ideal only if they do offer lower interest rates and fees than a borrower is paying on other loans.
You can get debt consolidation loans from a variety of sources. What’s more, they don’t have to be called a “debt consolidation loan” to count. Low-interest personal loans can also suffice.
Debt consolidation can be a relief for most borrowers, especially when it comes to reducing payments, interest, and fees. But is it right for you?
In general, debt consolidation is ideal for people who could benefit from a single monthly payment (rather than several).
It’s also the right choice for individuals who aren’t 100% drowning in debt. In general, your debt shouldn’t be more than half of your current income. If it is, it will be really tough to pay off that debt, even after it is consolidated!
Credit score can also play a role. In general, people with good to excellent credit are more eligible for 0% balance transfer terms on credit cards and low-interest consolidation loans.
If you have a lower credit score, you may struggle to find a consolidation method that actually saves you money.
It’s also important to have a plan in place once you do consolidate your debt. This plan should incorporate income sources and repayment terms.
Remember: debt consolidation doesn’t get rid of your debt. It only reorganizes it, in an attempt to reduce interest paid.
If you’ve decided that debt consolidation is right for you, begin by choosing how you wish to consolidate your debt. Is credit card consolidation right for you, or is a debt consolidation loan the way to go?
Next, start researching. Take your time to identify the best balance transfer terms and/or low-interest consolidation loan.
If you do intend to take out a loan for debt consolidation, browse lenders wisely. There are a lot of scams out there when it comes to debt consolidation, so look only for reputable lenders.
We also recommend inspecting your credit score before you hunt for offers. Remember: the higher your score, the better for securing terms likely to make debt consolidation worth it.
How does debt consolidation work? Debt consolidation involves lumping all of your debt into one loan to reduce payments and interest.
In general, debt consolidation can be a useful tool for individuals with debt that doesn’t surpass half of their income.
Are you ready to consolidate your debt? Apply for a loan now!
16% of Americans have a credit score of below 579. This is the lowest level of the FICO score and is categorized as “very poor”.
A poor credit score can have a serious impact on your personal life and can affect your business negatively as well.
While no one can guarantee that you will hit an exceptional score, there are steps you can take to improve your credit score.
Here are seven tips to raise your credit score quickly.
The very first step to take is to get a copy of your credit card report. This is the only way to know where you stand before you figure out the specific actions to take to make things better.
This is, however, not all you will be doing with your report. Go through it carefully, checking for any error and omissions.
Look for things like a repaid debt that’s been listed as a default or a loan you repaid on time that is not listed.
If you identify any of these issues, move to have them corrected. This action in itself can add a few points to your rating.
You will be surprised at how helpful your creditors can be. Unfortunately, if you never ask, you will never find out.
If you are having trouble making payments, make contact with your credit card issuer and communicate this with them.
Most providers have temporary hardship programs you can take advantage of. The benefit of this is that you can have your repayment amounts reduced until you get back on your feet.
Smaller, more manageable installments mean you can pay a lot more comfortably. This is better than skipping payments and having a creditor send a negative report that sheds a few points off your score.
This is a great way of giving your credit score an immediate boost. This works particularly well if you are just starting out and have little information on your credit rating.
You do this by getting someone with a high credit card limit and an even greater repayment history. Their card issuer sends them a card with your name on it.
Legally, you are not obligated to make payments on any debt accrued on the card. But its usage reflects positively on your credit score.
The key is finding someone with above board transactions. In a sense, you inherit the person’s positive credit history.
However, not all credit card companies report authorized users. Before you get on it, do your research and find out if it will be reported.
It’s not uncommon to fall behind on payments from time to time. However, these small mistakes lower your credit score.
If you are in good standing with your creditors, it does not hurt to request them to delete some of the reported late payments. Financial institutions regularly communicate with Credit Referencing Bureaus, and all it would take is a quick phone call on your behalf.
If the request goes through, then you will have fewer negative reports, which will add some points to your credit rating. Nevertheless, try and restrict your late payments to 30 days. Creditors will not report late dues failing in this time frame.
If your issue is forgetfulness, rather than availability of funds, you can have your banker or employer make direct payments if this facility is available. If not, there are numerous software tools you can use to remind you when your payments are due.
You might be eager to forget about your car loan or student loan debts once you make the final payment.
However, as long as you completed your payments promptly, those records may help your scoring. The same is true for credit card debt.
All you need to do is keep these debts on your record. If they were entirely left out, then provide all the information to the credit Reference Bureau so they can use it to calculate your credit score.
Bad payment histories are deleted with time. However, bankruptcies stay on your report for 10 years and late payments for seven years. You don’t have much leeway with these.
Credit utilization is the amount of credit card balance you have compared to your credit limit.
This is the second largest factor affecting your credit score. The first is your credit repayment history.
The more credit you use on your credit card, the further down your credit rating drops. This trend indicates you are spending a significant portion of your income to repay debt, which makes you likelier to default on payments.
The best credit utilization is 0, which means your credit card limit is untouched. This defeats the purpose of applying for a credit card in the first place.
As a rule of thumb, keep your credit utilization ratio at 30%. This means using less than 30% of the credit limit availed to you. Anything above this can cause your rating to drop.
Under the FICO system, people with the highest scores have a utilization rate of 7%. The lower your utilization, the better.
The average age and number of accounts you have held are an important consideration in evaluating how you handle debt.
This tends to disadvantage people with a limited credit history.
UltraFico and Experian Boost allow people with limited credit histories to puff it up using other information.
Experian requires access to your online banking data and allows Credit Referencing Bureaus to add utility payments to your history.
In the same way, UltraFico allows you to give permissions for savings and checking accounts to be used alongside your report when calculating your credit score.
All in all, while it is possible to raise your credit score quickly, expect a few bumps along the way and allow yourself some time.
At First Financial, we understand that while you work on your credit rating you might still need help from time to time. No matter your credit score, we have a financing solution for you. Contact us today for more information.
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