Tips To Avoid Taking On More Debt
Follow these tips to lower your chance of taking on further debt.
Review your budget to reduce spending
Keep track of what you spend each month. Review your budget carefully to see where you can cut costs. Put needs before wants and look for expenses you can live without. By reducing your spending, you’ll have more money available to repay your debts.
Reduce small, recurring expenses
Saving a little every day can go a long way.
Good examples of ways you can save money may include:
- taking public transit instead of driving your car and paying for parking
- bringing your lunch to work
- making your coffee at home
Keep your credit card in your wallet
To avoid getting into more debt, use cash or debit instead of your credit card. That way, you’ll spend money you already have. Stop using your credit card until you have reached your debt repayment goal.
Avoid âbuy now, pay laterâ offers
Some retailers, such as furniture stores, may offer you credit at 0% interest for a certain term. Remember to pay your balance in full by the time it is due. If you don’t pay off the balance by this time, the fees and high interest rates that you will pay will add to your debt load.
Use ATMs from your own financial institution.
Review your banking package to know how many transactions are included.
Look for ways to increase your income
Rebuild your credit
% Balance Transfer Credit Card
It might seem counterintuitive to apply for a credit card when your main goal is to get out of credit card debt, but 0% balance transfer cards can help save you money in the long run. Find a card that offers a long 0% introductory period preferably 15 to 18 months and transfer all of your outstanding credit card debt to that one account. You’ll have one simple payment each month, and you wont pay interest.
How One Woman Paid Off Over $25000 Of Debt In 18 Months
Over the course of nearly 20 years, her mindless spending habits began to add up even in spite of regular salary increases and an uninterrupted work history.
She refinanced her mortgage twice, paying down debt both times, only to let the debt slowly grow with no real plan in place to address the underlying habits and attitudes about money. Everyone has setbacks in life, and Valerie was no exception.
In 2006 she went through a divorce, and in 2009, after being diagnosed with Stage III breast cancer, her “you can’t take it with you” attitude hit an all-time high. Time felt precious to her in a way money did not. She spared no expense on travel for herself and her son, clothes, and dining out.
Newly remarried and completely in remission by 2011, she took careful stock of her life and especially her finances and was astounded by the magnitude of the debt at the time, over $25,000. She realized that if she didn’t change course immediately, she was headed for financial ruin.
“I told myself that this was an unsustainable situation,” she says. “I almost felt like a slave to it.”
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Best For Those Who Like To See Quick Results
With the debt snowball method, youll make the minimum monthly payment on all your credit cards, except for the one with the smallest balance. On that card, youll want to make the largest possible payment. Then, once youve paid off that card, move on to your card with the next-smallest balance until youre completely debt-free.
Paying Back A Consolidation Loan
Making the minimum payment on a consolidation loan will help you get out of debt eventually. However, the minimum payment on a line of credit will usually only cover the interest that you owe. You wonât get out of debt if you only pay this amount. Increase your payments if you can to help reduce your debt faster and pay less in interest.
A consolidation loan won’t hurt your credit rating if you make your payments on time.
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Writing Off Your Debts
- Possible in exceptional circumstances if you have no available income, savings or assets.
- You must be able to show your creditors that your circumstances are unlikely to improve in future for example, if youre severely ill.
Talk to a free debt adviser to find out if this solution could be suitable for you.
First Choose Which Debt To Pay Off First
If you have multiple credit cards, loans or other debts, its important to look at a few factors when deciding which to pay off first. To save the most money in the long run, pay down the debt with the highest interest rate, or pay the debt that is closest to your credit max. Both of these options will help raise your credit score in addition to relieving some of your debt. If youre interested in learning more, check out our advice on Keeping Score.
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Before You Do Anything Else
Gather together all your credit card statements and call each card issuer. Let them know youre struggling and looking for other ways to pay off your balances sooner. Ask for an interest rate reduction, or a temporary payment reduction .
While the law doesnt require a credit card issuer to make concessions, its always worth asking if the card company can help in any way. At the very least, they may suggest other options they can offer. And at best, you may be able to reduce your interest rate if theres a promotion you qualify for.
Google Was His Knight In Shining Armor
Scot decided to exhaust all his options before giving up. He used Google to research ways to pay off his debt.
I heard about Consolidated Credit through Google while looking for options to pay off my debt.
Consolidated Credit offers to anyone who needs expert advice and support. Our credit counselors are trained and certified in all things related to debt and money management. When you reach out to a credit counselor, they discuss your financial situation with you and help you devise a plan to get out of debt. It could be a debt management program, consolidation loan, or balance transfer credit card.
Initial counseling sessions as well as debt and budget evaluations come at no cost as most credit counseling organizations are non-profits. If a debt management program is the best option, the fees are low compared to other solutions. There is a small setup and monthly administration fee thats rolled into the monthly program payments. This fee is capped at $79 nationwide.
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Pay On Time And In Full
While it may simplify things to set payments to the same due date for multiple cards, this does not mean you should then ignore each of your credit card balances the remainder of the month. Paying down your balance in small amounts throughout the month whenever possible can help reduce your overall debt and help keep you conscious of your spending and habits.
Paying on time or even ahead of time can work to your advantage for another reason: If you miss your payment due date and your balance is already reduced because you paid it down earlier in the month, you wont carry as large a balance. Because your interest is a percentage of the balance on the card, the smaller the balance you carry over, the smaller the dollar amount of daily interest.
How To Reduce Credit Card Debt Fast
If you’re particularly struggling with high credit card balances, you’ll want to bring them down as quickly as possible because credit cards tend to charge much higher interest rates than personal loans, student loans and other types of debt.
In addition to measures such as adding income and trimming your budget , the following steps can help you get your credit card debt under control.
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Use A Balance Transfer Credit Card
If you want a long stretch of time to pay off your debt, consider the Citi Simplicity® Card with an intro 0% APR for the first 21 months on balance transfers or the Wells Fargo Reflect Card, which also offers an introductory 0% APR for the first 21 months on qualifying balance transfers .
Balance transfer cards often have set maximum limits on the amount of debt you can transfer, and you can’t complete a transfer between cards issued from the same bank. Make sure you read the fine print before requesting a transfer. Also be aware that good or excellent credit is often required for a balance transfer credit card.
Find out more about how to make the most of your balance transfer.
What If You Can’t Qualify For A Balance Transfer Card
Although balance transfers work well for credit card debt, they aren’t right for everyone. Like most of the best credit cards, the top balance transfer cards are typically only available for consumers with good to excellent credit. If your isn’t at least near 670, you could have trouble qualifying.
Debt consolidation loans are another option, and many lenders offer loans for borrowers who don’t have high credit. You could get a loan large enough to cover all or a portion of your debt and use that loan to pay off your credit cards. Then, you’d pay back your loan in fixed installments and ideally at a lower interest rate than you had before.
You’ll need to find a lender with minimum requirements you can meet, but there are plenty of personal loan lenders available to fit many people’s income and credit score. If you don’t have a high credit score, here are a few lenders that focus on borrowers with poor to fair credit:
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We Were Flexible And Got Comfortable With Being Uncomfortable
The day we cut up our credit cards .
We quickly realized that the deprivation mindset taught by Financial Peace University was not going to be sustainable for us long-term. Saying no to everything that we loved was making us feel bitter and resentful toward our debt payoff journey, and there were times when we wanted to give up on the process because we didnt get to enjoy any of the things that we really loved.
It was at this point that we realized we wanted to take a different approach with our debt payoff journey than the one that we were offered through FPU. We wanted to find the balance between actively paying off our debts and spending money on things we enjoyed.
So once we settled into the groove of our Debt Snowball strategy, we actively incorporated a few extras into our budget that allowed us to continue to enjoy our lives while sticking to our budget and chipping away at our debts.
Additionally, we got really comfortable having uncomfortable conversations about money that we used to avoid.
As creatives, our income from month to month wasnt always consistent, so we got in the habit of having monthly conversations about how much money we were bringing in, how much we were spending, how much progress we were making on our debt payoff journey, and what extras we wanted to incorporate into our month. Conversations that once were a source of shame and arguments became an opportunity for us to meet each other with grace and grow closer as partners.
Borrow From Your Retirement Plan
Raiding your IRA or withdrawing money from your 401 is not a prime option, since there is a 10% penalty if you withdraw money before age 59½. It became temporarily less risky after Congress approved the first COVID-19 stimulus bill in March 2020, which allowed those hit with a hardship related to the pandemic to withdraw up to $100,000, waived the 10% penalty and gave three years to pay it back. That plan lasted until March 21, 2021. After that, the old rules apply, which means a high fee, taxes on the money withdrawn and higher income related to how the withdrawal affected your income. And, with the interest accumulation lost, less money for your retirement.
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Should You Use A 401 To Pay Off Debt
Whether you should use a 401 to pay off debt depends on several factors. If you’re younger than age 59 1/2, any withdrawals will be subject to income taxes and an early withdrawal penalty. After age 59 1/2, you pay income taxes. You also lose all the potential interest those funds could earn. That said, if you have high-interest debt , it might still make sense to use 401 funds to pay it off. A financial advisor can help you decide which option makes the most sense in light of your financial goals.
How I Paid Off $25000 Of Debt In Under A Year
If you’ve lost countless nights of sleep worrying about your growing debt, I hear you. This is how I finally took action and paid off my debtall in under a year.
This article by Avery Johnson was originally published on shesoulfood.com and is republished with permission.
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Do I Need Good Credit To Consolidate Debt
Applicants with good credit will have a wider range of debt consolidation options. They can get approved more easily for balance transfer credit cards with introductory 0% APR periods and personal loans with lower APRs.
Still, there may be options for consolidating debt if you have bad credit. You could try a secured loan, such as a home equity loan, which may come with a lower APR. There are also 401 loans, which let you borrow money from your own retirement fund without a credit check.
The Scenario: You Can Easily Afford Your Minimum Monthly Payments On Credit Cards
If you can afford to pay your minimum monthly payments and more, here are your best four solutions.
OPTION ONE Use the debt snowball method to paying off credit cards
- Dave Ramsey created the debt snowball method. This method relies on psychological principles to deliver results.
- The idea is to eliminate your smallest balance first. Put as much money as you can towards your lowest credit card balance, while paying minimum payments on the rest.
- Before you get started, you need to complete a budget analysis. By getting a visual of all your finances, this makes it easier to find extra money. Maybe you can reduce your electric bill, cut out unnecessary spending, start using coupons and .
- Why does the debt snowball model work? It works because its motivating to a person after paying off a credit card debt. By starting with your smallest balance first, you get to see the quickest results. Studies prove this method to be the most effective way to clear your credit card debt fast.
OPTION TWO The debt avalanche method to pay off your most expensive debt first
OPTION THREE Use a home equity line of credit
OPTION FOUR Balance transfer credit cards that offer a zero-percent interest rate for 12-months
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Earn Enough To Get Out Of Debt
If you want to get out of debt by yourself, you need to earn enough money to survive AND enough money to pay down your debts.
Put another way: You need to go from a situation in which youre spending more than you earn into one where youre earning more than you spend. And the faster you want to become debt-free, the more you have to earn above and beyond what you spend.
Pay $25k In Credit Card Debt Or File Bankruptcy
Dear Bankruptcy Adviser, I am retired and on Social Security. I also have a 401 worth about $60,000. I owe about $25,000 in credit card debt. I own nothing worth more than a 5-year-old car. Should I pay off my debt? I paid nothing for several years trying to keep my house. Or do I file for bankruptcy? Wouldn’t my retirement money be seen as an asset and therefore be open to seizure? — Michele
Dear Michele, I think this type of question is worth answering for a couple of reasons. First, I can discuss your legal options and second, I get to give my opinion on your moral dilemma. And that dilemma is one that is the more interesting part.
From a legal standpoint, you state you own nothing but a 5-year-old car, some 401 money and about $25,000 in debt. I don’t have information on your income or monthly expenses, so I cannot comment on your monthly budget, but you are very likely eligible for Chapter 7 bankruptcy.
The 401 money, as long as it remains in that account at the time of filing, is exempt. That means the funds cannot be seized to pay your creditors. You can file your case and take the money out after your case is over. It is important that you do not touch that money until the court closes your bankruptcy case, otherwise the funds could be in jeopardy.
That means you would have the ability to wipe out the credit card debt but keep the 401 money and the vehicle.
Maybe there is some truth to that, but I actually have another reason.
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