How Can I Pay Off Debt With No Money
- Try and find money in your existing budget by cutting your expenses.
- Stop using your credit cards to float your lifestyle so at least the debts dont get larger.
But eventually youll have to pay all debts back and that takes real money. This is why I emphasize earning extra cash via side hustles so much. Its the key to any successful debt payoff strategy.
Still thinking about consolidating your debt?
Consolidate Debt With A Personal Loan
Personal loans can be a good alternative to balance transfers if you have a large amount of debt. If your debt is spread out across several credit cards, you can consolidate it into a personal loan. And depending on your credit score, you may qualify for a loan amount that will cover your entire balance.
A personal loan provides you with a fixed amount of money over a fixed time period and usually at a fixed interest rate. The interest rates for personal loans are rarely 0%, but often lower than keeping a balance on your current credit card.
She Qualified For A No
Since Lana had a good credit score, she qualified for the Chase Slate®. This balance transfer credit card doesn’t have the typical 3% balance transfer fee when the transfer is made within the first 60 days. Being able to avoid this fee saved Lana about $492 right from the start.
The Chase Slate offers 0% APR for the first 15 months. When Lana signed up for the card, she said the variable APR jumped to about 26% after the intro period was over. With such a high variable APR , she was extra motivated to pay off her balance before the 15 months were up.
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Major Credit Card Mistakes
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Eric is currently a duly licensed Independent Insurance Broker licensed in Life, Health, Property, and Casualty insurance. He has worked more than 13 years in both public and private accounting jobs and more than four years licensed as an insurance producer. His background in tax accounting has served as a solid base supporting his current book of business.
can be a boon to consumers, providing many advantages and benefits. Because they’re such a great alternative to cash, they’re great if you need to make purchases when you find yourself in a pinch. Some cards offer perks like rewards like cash back or travel miles, while others give you some added protection for your purchases. If you play your cards right and pay your balances off each month, you’ll never have to pay a dime in interest. Plus, being a conscientious credit card user can help boost your credit rating. However, these little pieces of plastic can also be a curse, especially if you’re already swimming in debt or just don’t know how to keep a handle on your finances.
Thousands of consumers have trouble getting their credit card balances under control. If you’re among these consumers, don’t despair. You’ll make your debt more manageable once you choose to change your spending habits. Take a giant step in this direction by avoidingor stop doingthese six major credit card mistakes.
How Do I Pay Off Debt With The Snowball Method
With the debt snowball, youll pay off your debts in order from the smallest balance to the largest. Heres how it works:
- Step 1: Make the minimum payment on all of your accounts.
- Step 2: Put as much extra money as possible toward the account with the smallest balance.
- Step 3: Once the smallest debt is paid off, take the money you were putting toward it and funnel it toward your next smallest debt instead. Continue the process until all your debts are paid.
Many people love this method because it includes a series of small successes at the beginning which will give you more motivation to pay off the rest of your debt. Theres also the potential to improve your credit scores more quickly with the debt snowball method, as you lower your credit utilization on individual credit cards sooner and reduce your number of accounts with outstanding balances.
With this approach, you take aim at your smallest balance first, regardless of interest rates. Once thats paid off, you focus on the account with the next smallest balance.
Think of a snowball rolling along the ground: As it gets bigger, it can pick up more and more snow. Each conquered balance gives you more money to help pay off the next one more quickly. When you pay off your smallest debts first, those paid-off accounts build up your motivation to keep paying off debt.
Example of the Debt Snowball in Action
Lets take the same accounts we used in the first example.
|Type of Debt|
To use the debt snowball method:
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Use A Credit Card Balance Transfer
Some have promotional, 0% interest rates for debts that you transfer to the card. While you may have to pay a balance transfer fee, youll be able to pay down the transferred balances faster, as they wont accrue interest during the promotional period.
But if youre tired of playing the credit card balance shuffle, try a balance transfer loan instead and save yourself from the cycle of constantly moving balances from one credit card to the next.
Snowball Method: Pay Off The Smallest Balance First
Some financial advisers suggest tackling the smallest balance first, while maintaining the minimum payments on the others.
While this won’t reduce the amount of overall interest you will pay against all of your credit cards, it’s a great way to build momentum: Once you’ve paid one card off, you’ll be even more excited and determined to pay off the card with the next smallest balance, and so on until you’ve rid yourself of all credit card balances. The way it works is:
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Map Out A Repayment Plan With A Debt Avalanche Or Debt Snowball
There are two main schools of thought when it comes to credit card debt repayment.
The first, the debt avalanche method, focuses on paying off your cards with the highest interest rates first, and then, once those are paid off, moving to those with the lowest interest rates. This approach makes the most mathematical sense, since youre shortening the amount of time youre paying off the credit cards that are charging you the most money.
The other tactic is the debt snowball method. This is specifically for people who struggle to stick to a debt reduction plan when there seems to be no end in sight.
Popularized by personal finance expert Dave Ramsey, the debt snowball focuses on paying off your smallest debts first, then your next-smallest balance, and so on. According to some behavioral economists, eliminating small debts early on in the paydown process can be a worthwhile mental reward that helps some people stay motivated to stick with it.
This isnt quite as cost-effective as paying off the high-interest debt first, but if it gives you the motivation to buckle down and pay off your debts, it might be the preferred route.
Ways To Pay Off Credit Card Debt Fast
This is a great time to get out of credit card debt. The economy is starting to work its way back to normalcy following the COVID-19 pandemic, and the average Americans personal savings rate has jumped to record levels.
Still, many people are stuck with high-interest credit card debt a burden that will only worsen when the Federal Reserve increases interest rates as early as next year.
In other words, the time to get to work whittling down that debt is now especially if you were able to save money over the course of the pandemic. Here are six smart strategies to help you out.
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Our 7 Steps For Paying Off Credit Card Debt Quick
Step 1: Commit to becoming debt-free. Make the commitment to yourself to stick with the goal of paying off your debt. Realise youll need to make sacrifices and cut back leisure expenses. Sacrifices are needed until your accounts hit zero.
Step 2: Set financial goals. Having clear goals for the debt-free you is essential. Clear goals will strengthen your commitment and ease the pain of sacrifices you need to make. Therefore, set goals for yourself and for your family. It can be as simple as going on a family holiday or start saving for your childrens education.
Step 4: Cut your spending. You must cut back on your spending, at least until you have cleared your debt. Most importantly, stop using your credit card. Its impossible to pay off your credit card debt while adding to the balance.
Cutting back requires a close look at all your expenses and your bank statements. Separate living expenses, such as groceries, rent, and utilities from discretionary expenses, such as eating out, shopping, gym memberships, etc. Eliminate as much as you can from discretionary expenses, allowing you to put more money towards paying off your debt quicker.
Step 5: Create a budget. Probably one of the most dreaded things to do, but its required. At least for the early days. You must understand how you spend your income. How much goes to living expenses and how much is left for discretionary expenses. And of course, how much can you use to pay off your debt.
How To Pay Off $500 Or More In Credit Card Debt
Your first step in getting out of credit card debt involves evaluating your finances to determine where you stand. If you cant pay more than the minimum on your cards, for example, you might seek out additional sources of income, like freelance work or a part-time job. Doing so would open new ways of managing your debt, though we offer some options below if you cant currently make payments.
A budget can be a powerful tool to track what money is coming in and going. You can create your own budget or download an app that pulls spending and earnings directly from your bank account and displays it in a dashboard. A popular budget strategy is the envelope method, where you set aside the exact amount of cash you need each month, placing hard limits on spending. Those that would prefer an app may find Mint or You Need a Budget provide needed accountability.
With a better understanding of your finances, you can make moves to create room in your budget to pay off credit card debt.
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Keep Your Credit Card Account Active
Paying off a credit card isn’t like paying off a loan. When you pay off a loan, the account is considered closed and if you want to borrow more money, youll have to apply for another loan. Assuming your credit card account was in good standing when you paid off the balance, the account will remain open.
You dont have to close the account unless its part of a larger plan to reduce the number of credit cards you have or to remove the temptation to overspend. If you use your credit card, make it a goal to pay off your balance in full each month so you won’t get back into debt.
Keeping a paid account open can help your credit score by lowering your overall credit utilization. If the account has a long history, it will help your average credit age.
Put The Money In Savings
If you dont have other credit cards or debts to pay off, the next best thing is to put the money in savings. You can contribute to your retirement fund, kids college funds, emergency fund, or vacation savings. Immediately after you’ve paid off your credit card, set up an automatic transfer for the amount you’d like to save each month, and schedule the transaction around your job’s pay period.
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How To Calculate Which Credit Card To Pay Off First
When you’re ready to pay off your credit cards, selecting the right credit card to pay off first may help you build a strong debt repayment strategy, as well as help you plan for credit card usage in the future.
There are a number of simple ways to insert a credit card debt repayment strategy into your life. Ahead, you’ll find a few different methods that may help you decide which credit card balance to pay first and some factors to consider when implementing one of these methods into your financial goals.
Pay Off Smallest Balance First
We know that there are suggestions out there to pay off cards with the highest interest rate first and this is a great strategy if your goals would take you much longer, but for a short-term goal you should pay off the cards with the lowest balance first.
The key here is that you will be paying off all the cards anyway so you will not incur too much interest during this time frame.
Also, as you see the balance going to zero this will motivate and encourage you to keep going, knowing that success is inevitable.
Once youre done with the lowest balance you then roll all that payment into the next card with the lowest balance and continue this method until all balances are paid.
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Negotiate Your Interest Rate
In addition to paying more than the minimum, paying less interest will make your debt payments go even further. If you have high interest rates on some or all of your cards, try negotiating with your creditors to see if they will lower your rates.
Interest rates are assigned when you open an account and are based on your creditworthiness at that time. If your credit or income has improved since then, and if you have a good payment history with your creditor, the company may reevaluate your interest rate.
Prepare for the call by gathering information that shows your track record as a good customer and evidence of how your credit score or income has improved. If your creditor rejects your request, ask for a temporary reduction to get some breathing room.
There’s no harm in asking your issuers to reduce your interest rates. Any reduction could help you save money, and will help you speed up the process of getting rid of your debt. The worst that can happen is they say no.
Keep Your Credit Cards Open
While you may think that closing a paid-off credit card would be good for your credit, usually it’s not. Closing a credit card account can hurt your by reducing your total available credit. It can also change the average length of your credit history . Both your credit utilization and the length of your credit history are key components in calculating your , and any changes to these categories could cause your scores to dip.
One exception to this guidance is if you can’t afford your credit card’s annual fees. Some cards charge steep fees each year, and if you don’t have enough money to pay them, check with the issuer about getting a different card it offers or canceling the account altogether.
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Break Up Your Goal Into Bite
Last year my goal was to pay off $5000 of credit card debt by my birthday. My birthday is early March. It was a tough achievement for me. Achievable, but tough.
If youre looking at a larger goal, like paying off a hefty mortgage I strongly suggest you break up your goal into manageable chunks over a period of time.
Why would you do that?
Because breaking that large goal into smaller chunks helps reduce that monolithic stretch that youre unlikely to reach in one go into something far more achievable.
If you set yourself a goal to pay off your 30-year mortgage in just 15 years then youre unlikely to find the short term motivation youll need to keep at it. Youre human at the end of the day.
Setting yourself up for an epic goal without breaking it down into achievable chunks is setting yourself up for failure.
But here is one of my first big tips.
Dont break the chunks down into monthly amounts you want to push yourself.
For example, if you have a goal that needs to be achieved in a year or more then break that up into quarterly goals. By doing this youll start to feel like youre getting somewhere once you hit one of those quarterly milestones.
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Here is an example. Joan Smith, like many Canadians, deals with only one bank, the ABC Bank, where she has one bank account. She obtained her VISA, her only credit card, through ABC Bank. Furthermore, she has her paycheque and her government baby bonus payments direct-deposited into her bank account at this same bank.
Joan pays her rent and her car monthly car insurance using a Pre-Authorized Debit on her bank account at ABC Bank. She also pays a number of monthly utilities cable television, internet, and cell phone bills using a Pre-Authorized Debit on her ABC Bank VISA, which has a $10,000 limit. She currently has $800 in her bank account at ABC Bank, enough to cover next months rent. This month, her minimum monthly payment on her ABC Bank VISA is $200. She cannot afford to make this payment because she needs to pay her rent as well as some unanticipated car repairs.
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