Work Smarter And Harder
There is no question that getting out of debt takes some serious hard work, and that often includes hard work at your place of employment. Anything you can do to boost your income will help you get closer to your financial goals. Therefore, take advantage of opportunities to put in extra hours at work. You may even consider adding a part-time job.
Bear in mind, though, that balance is key. If you work too hard, you could burn yourself out. You will be mentally and physically exhausted, and that could lead to poor spending habits. For example, if you are always too tired to cook when you get home, you could end up buying your dinner every day. Know how much work you can handle, and stay within your limits.
Also, look into work-at-home options, whether it’s through your current employer or you pick up another job. Working at home usually comes with a flexible schedule that you can mold around your other activities, and you’ll save on transportation costs. Plus, if you can stand to work at home while the kids are around, you save on childcare expenses.
Pay More Than The Minimum
Make sure that you always pay more than your minimum monthly payments of your credit card balance, overdraft, or line of credit. If you only make your minimum credit card payments each month, it can literally take forever to pay off your balance. Thats because the majority of your minimum payment will go towards paying interest fees rather than reducing the amount you actually owe .
If you want to pay off your balance quickly, pay as much extra as you can afford. Even an extra $50 each month will help. Try using a financial calculator to see how much you can save like this!
Consider Consumer Credit Counseling
A can work with you to review your finances and figure out a budget that can include monthly debt payments. If you cant afford your debt payments, the will try to work out a debt management plan with your creditors. The DMP will often include lower monthly payments to your creditors, and you might make one monthly payment to your credit counselor who will then distribute payments to each of your creditors.
If your situation and ability to pay off debts is more complicated, you could consider seeking assistance from a debt relief program. Pursuing debt settlement is a last resort because it involves stopping payments and working with a firm that holds that money in escrow while negotiating with your creditors to reach a settlement, which can take up to four years. Withholding payments from your creditors can seriously damage your credit score.
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Save Money For Big Expenses
This year, I budgeted and scrimped to put aside the money to cover some dental work for my elderly cat and registration and a brake job for my elderly car . My plan going forward is to keep money put aside as a slush fund, for both emergency expenses as well as planned costs that might be more than I could spare from an average paycheck. It’s impossible to predict every expense, but I firmly believe in the power of an emergency fund.
A Helpful Guide To Getting Out Of Debt
Many U.S. households find themselves buried in debt. According to CNN Money, the average indebted household in the United States owes more than $15,000 in credit card debt. The average mortgage debt stands at roughly $153,000, and the average student loan debt is more than $32,000.
What is the underlying cause of those eye-popping numbers? For many people, going into debt starts out innocently. They intend on borrowing only what they know they can repay, but as circumstances change and needs and wants arise, they fall back on borrowing. Soon, so much of their monthly income goes toward repaying debt that they may have to go into more debt just to make ends meet. It is an unforgiving cycle.
Are you struggling to cope with your monthly debt repayments, or do you just want to create room in your budget? In either case, you can use the following tips to help you cut bills and breathe a little easier when you look at the numbers in your bank account.
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Consider Cashing In Your Life Insurance
Cashing in your life insurance may be a viable debt payoff strategy because it will give you a chance to pay down larger amounts of debt quickly. If you feel like you are drowning in debt and don’t have beneficiaries that need to benefit from your life insurance policy for example a spouse or children then it might make sense to use those funds to pay off debt.
This strategy doesn’t apply if you own a term life insurance policy. It only works for those with whole life policies that have built up cash value. It’s also important to note that even if you do have beneficiaries, you may be able to tap into part of the cash value of your whole life policy, getting cash for debt reduction and still leaving some life insurance proceeds to your loved ones.
S To The Debt Snowball Method
Once your zero-based budget is squared away, you can start the rewarding process of paying off your debts with the debt snowball.
Heres what youll need to do:
You can see how each minimum payment will be added to the previous payment, creating the snowball effect.
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Learn About The Types Of Personal Bankruptcy
Federal courts have jurisdiction over all bankruptcy laws, so you must file a petition in a federal bankruptcy court. There are two main types of personal bankruptcy:
- Chapter 13 lets people with a steady income keep their property. This bankruptcy plan allows filers to keep a mortgaged house or car they might otherwise lose in the bankruptcy process.
- Chapter 7 is known as straight bankruptcy. It involves liquidating all assets that are not exempt under federal or state law.
Plan For Shopping Trips
The last few years of the COVID-19 pandemic have made me lose most of my taste for in-person shopping . And keeping better track of my money has meant that I now budget for shopping trips, and go in with a number figure of what I want to spend. I do the same for online shopping, and I have been known to leave a browser tab open for a while to give myself time to truly consider if I actually want to buy something. I also get far fewer marketing emails than I used to.
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Start Paying More Than The Minimum
If you’re only paying the minimum balance on your credit cards, you could be slowing your progress. Take the example below:
Payment Due Date : Nov. 18, 2019New Balance: $1251.20Minimum Payment Due: $25.00
LATE PAYMENT WARNING: If we do not receive your minimum payment by your due date, you may have to pay a late fee of up to $39.00.
MINIMUM PAYMENT WARNING: If you make only the minimum payment each period, you will pay more in interest and it will take you longer to pay off your balance. For example:
|If you make no additional charges using this card and each month you pay:||You will pay off the balance shown on this statement in about:||And you will end up paying an estimated total of:|
Estimated savings if balance is paid off in about 3 years: $1,239
When only paying the minimum, you’d be paying off the debt for 10 years and that doesn’t even account for making new purchases. In this example, paying a little more than double the minimum payment would result in paying off the debt in three years while saving $1,279 in interest.
Take a look at your credit card statements and see if you can reduce the time you’re in debt by paying more than the minimum.
How To Get Out Of Debt: A Step
If youre heavily in debt, youre not alone: a GOBankingRates survey found that the average American is $63,000 in debt. Whether your debt is from student loans, credit cards, mortgage loans, auto loans, medical bills or some other form of debt, it might seem impossible to dig yourself out of it. But if you make a plan to tackle your debt head-on, you can ease your way out of your current financial predicament.
Before you begin the process of becoming debt-free, its important to know exactly what youre dealing with. Gather all your credit and debt information, including:
Your most recent statements from any outstanding loans and debts, including student loans, medical bills, etc.
Your credit card statements
Your credit report, which you can obtain for free each year through AnnualCreditReport.com
Your credit score, so you can find out if youre eligible for a debt consolidation loan or lower interest rates
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Check Your Credit Score Regularly
Ignorance may be bliss, but knowledge is power. To this end, as I pay off my debt, I’ve gotten really into checking my and watching it improve. I use a consumer credit-monitoring service, and I also take advantage of the services offered by some of my credit card issuers. If something goes awry with my credit, I will find out quickly and be in a position to fix it.
Final Thoughts On Getting Out Of Debt
Tackling your debt is a three-part process: Understand your debts, make a plan, and put your plan into action. Its not as easy as it sounds. It takes hard work, persistence, and discipline. But with a solid plan and a willingness to make changes in your lifestyle, your goal of getting out of debt can become a reality. The goal is worth the effort!
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Credit Card Balance Transfers
Just like debt consolidation, credit card balance transfers will only offer you a temporary solution. Sure, it might give you a little extra breathing room in your paycheck, but itll keep you in debt for longer. Why? Because youll be tempted to spend those extra dollars on something other than your debt. Remember, the only way to beat debt is by throwing everything you have at ituntil its gone.
Can You Get Rid Of Any Debt Right Away
Visualize yourself without any debt. The reality is months – or perhaps years – in the future, but it is possible that you can lop off some of your debt immediately.
Maybe you love your car, and it is your faithful companion day after day as you brave rush hour traffic to get to the office. However, if you have to face heavy traffic, you probably live in a metropolitan area with a good public transportation system. Can you say goodbye to your wheels? If the amount you owe on your car is less than the car’s value, it might be worth it. Plus, going without a vehicle saves you money on gas, insurance, parking, and maintenance costs.
Take a look at your recent purchases. Can you return any items that you bought on credit, like that adorable dress that you never got to wear?
Also, investigate student loan forgiveness. You may be able to lower significantly, or even eliminate, your monthly payments.
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Which Debt Should You Pay Off First
When deciding how to best tackle your debt, its important to become familiar with your financial obligations and which you want to repay first:
Its important to take stock of what you owe because some types of debt will open new doors for your debt repayment strategy. For example, you may be able to negotiate medical debt. With mortgage and auto debt, you could consider refinancing. If you have credit card debt across multiple accounts, you could consolidate.
If youre not sure which debt to pay off first, consider factors like the annual percentage rate . A loans APR is a measure of your borrowing cost over a year and takes the interest rate plus fees into account. Consider each debts outstanding balance, as well. In general, paying off the debt with the highest APR is your best bet for saving money, especially if youre locked into your terms and cant refinance for better terms.
Transfer Debt To A 0% Intro Credit Card
Another way to consolidate debt is to use a balance transfer credit card. Ideally, youll want to find a 0% intro credit card so you can avoid paying interest for the first several months. This way, any payments you make on the card will go directly toward reducing the principal. Keep in mind, however, youll typically have to pay a fee when utilizing a balance transfer credit card and once the 0% intro period is over, youll have to start paying interest on the remaining balance.
Credit cards and personal loans are both popular ways of consolidating debt. However, these debt repayment options may be out of reach for consumers with subprime credit. Youll have a hard time securing a good rate on a personal loan with bad credit, and youll find it difficult to qualify for a balance-transfer credit card without a good credit score.
If debt consolidation or a balance transfer credit card seems like the right money move for you, compare your options below.
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Should You Consolidate Your Debt
At some point, youve probably considered consolidating your debt. There are a few benefits to this:
- It makes managing all your debts simpler
- You can save on interest
If you have several credit cards or personal loans with high interest rates, it can make sense to take out new finance, pay off all your debts and leave yourself with just one debt to manage.
But there are two key things to remember.
Consolidating your debt is only worth it if you can save money on interest. Moving to a loan with higher interest rates is going to leave you in a worse position, even if it makes managing it simpler.
Also remember, taking out more finance doesnt mean you can now spend more. Dont make the same mistake some people do when they take out a brand new loan, pay off debts and then dump another big purchase on a credit card.
Debt consolidation loans are yet another debt, remember. Its not a ticket out of debt unless youre serious about clearing it and staying out of debt.
Setting Up An Emergency Fund
An emergency fund is money you set aside to pay for unexpected expenses. You’ll most likely have to deal with an emergency resulting from an unexpected situation or a drop in income at some point in your lifetime. In general, it’s recommended that you save the equivalent of three to six months of your regular expenses. You can also aim to save three to six months of income. Both methods are effective, so choose whichever one works for you.
These amounts can sometimes seem out of reach. That is why you should save gradually. Saving a small amount on a regular basis can make a big difference in the long term.
Here are some additional resources that can help you to start spending smarter:
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How Do I Check Out A Credit Counseling Agency
Just because an organization is a non-profit doesnt guarantee its services are free or affordable, or that its legitimate. Some credit counseling agencies charge high fees, which they might not tell you about.
A reputable credit counseling agency should send you free information about its services before you say anything about your situation. You can check out agencies youre considering with your state attorney general and local consumer protection agency. They can tell you if they have any complaints about them. Even if there are no complaints, its not a guarantee that theyre legitimate. Also ask your state attorney general if a company is required to be licensed to work in your state and, if so, whether the companies you might do business with are.
The U.S. Trustee Program keeps a list of credit counseling agencies approved to provide pre-bankruptcy counseling, but it doesnt endorse any particular agency on the list.
After youve done your background investigation, interview the final candidates. Choose an agency that:
- has credit counselors that are accredited or certified by an outside organization
- offers a range of services, including budget counseling, debt management classes, and free educational materials
- will give you a specific quote in writing for any one-time or monthly fees
- will help you even if you cant afford the fees or contributions
Be sure to get every detail and promise in writing, and read any contracts carefully before you sign them.