Credit card debt is a very interesting concept, especially when you look at the stats. As consumers, we all say that we’ll never get over our heads in debt, but, all too often, we find ourselves drowning in monthly bills. In fact, according to DebtConsolidation.com, the average borrower has $2,859 in credit card debt and American household debt is higher than ever before at $12.73 trillion total. So, if you feel like you’re drowning in debt, you can rest assured that you’re not alone. Here are 5 tips to help you fight back against debt.
Tip #1: Put Your Credit Cards On Ice!
You don’t necessarily have to put your credit cards on ice, but it is important to stop using them. You see, by their very nature, credit cards become a crutch when we want something that we cannot afford. This often leads to accumulations of high balances through small purchases made over a long period of time. If you are determined to get out of debt, it’s important to stop using your credit cards, no matter how small the purchases are.
Some people simply can’t resist the urge to spend when it is convenient. However, they also don’t want to cut their credit cards in pieces in case there is an emergency and they are needed. So, what do you do. If you’re in this position, it may not be a bad idea to put your credit cards on ice. Put them in a freezer bag, fill it with water, and throw it in the freezer. When you have an emergency that makes it worth it to go through the thawing process and get to your credit cards, it’s OK to use them, but you’re not going to go through all of that to buy a trinket for $10.
Tip #2: Get To Know Your Debts
Before you can start tackling your debts, it’s important to get to know them. To do so, it’s a good idea to create a spreadsheet that includes the name of the lender, account balance, interest rate, minimum payment, and any annual fees. All of this data will help you understand which debts are costing you the most money and provide a way to clearly prioritize which debts to attack with extra funds you may have. This is also called a debt profile, which is a key factor in any well rounded budget spreadsheet.
Tip #3: Set Your Priorities
With a debt profile in hand, it’s now possible to easily see which debts you carry that are charging the highest interest rates. These, in general will be your highest cost debts. Take a look at your list of debts and set your priorities based on the cost of maintaining your balances. It’s important to send your extra funds to the highest interest rate debt that you cary first, breaking down your highest cost debt while making minimum payments on all others. Spreading minimum payments out across all debt accounts will lead to higher interest debts lasting longer than they should and costing far more money in the long run. To get a better understanding of how to prioritize debt repayment, read this article on the debt snowball payment plan.
Tip #4: There’s No Shame In Asking For Help
Debt creates a feeling of remorse and regret in those that have hard times paying it back. Many times, this can lead to the debtor being embarrassed to ask for help. However, lenders know that things happen and that not everyone will pay debts as agreed. They also know that if financial hardships go on for too long, they could lead to bankruptcy, meaning that the lenders will never get paid back. Therefore, some lenders have financial hardship programs designed to help their customers that are facing hard times dig themselves out of debt before going bankrupt. If you feel as though even your minimum payments might be too much to keep up with, a good place to start would be to call your lenders and see what kind of assistance they might be willing to provide.
Tip #5: Taking Help One Step Further
While some lenders will be willing to help their customers that are struggling, others will not. Unfortunately, that leaves man feeling as though they have nowhere to turn. However, that’s not necessarily the case either. Outside of programs directly from lenders, there are debt help programs provided by third parties that you may want to consider taking advantage of. The most common of these programs are known as:
- Debt Settlement – Debt settlement happens when a company negotiates a settlement on your behalf, reducing the actual amount owed on the debt. These programs can lead to severely negative marks on your credit score and should be considered a last resort.
- Debt Consolidation – Debt consolidation can happen in one of two ways. Either the borrower takes out a new loan with a relatively low interest rate and a set payment plan that will allow them to pay off all of their debts, consolidating them into one single debt. Another type of debt consolidation is when a professional acts as a power of attorney, handling interest negotiations with banks. From there, one payment is sent to the debt consolidation company who then dispurses the smaller payments to each lender owed by the debtor.
Final Thoughts
Being in overwhelming debt can feel lonely and scary. However, the truth of the matter is that you’re not alone. Debt is a common issue in the United States and around the world. However, that doesn’t mean that you have to deal with it for the rest of your life. By taking advantage of the tips above, you’ll be on track to take your financial freedom back from your lenders!
This is really insightful and helpful. Debt cannot go extinct so long human existence must be in context.
To get off your debts, you’d better stop creating more debts. Resist the urge to borrow.
You’ll need a spending plan, not a budget.
Living within your earning will save you stress and anxiety.
Thank you so kindly for outlining these steps, love the job you are doing here.
Hi, I enjoyed this article. Credit card debt is high up on my list of most hated debt! However, I think it is worth mentioning that you can get some great sign-up bonuses with credit cards. We have made a few thousand dollars in sign-up bonuses this year by opening credit cards and paying our every day expenses with them to get the bonus (sometimes as much as $500!). This works well if you pay off your bill every month and is actually a pretty good use of your money. For example we had to spend $4000 on one credit card to get the $500 bonus. That is 12% return on money we would have spent day-to-day living anyway!
Russell
I like how you mentioned that I should thaw my credit card while having an emergency. My mom is in critical condition because of dementia and it is clear to see that I need to settle my debts. If ever, we will need help from a Credit Card Debt Bankruptcy Lawyer to help me out so I can secure my funds while I help my mother.