8 effective get out of debt strategies for you

8 effective get out of debt strategies for you

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If you’re having severe debt problems and living on a low income, you might be looking for information on how to pay off debt quickly with a limited monthly income. But deep down inside, you’re well aware of the fact that it’s not so easy, rather quite impossible for you. But, there are people who survived that situation. Their struggle, hard work, and dedication might help you to get over your situation too.

I have talked with some winners of the debt battle recently. One of them told me her outstanding triumph to become debt-free.

My friend Sarah Connor, age 31, told me about her debt battle, which she won in 19 months! She lives in beautiful Northern Colorado with her husband and two furry kids. Her husband owns a garage and she works as an accountant in a construction company. She is the sole person who has a constant and stable income among them. Her husband does not make enough money from his garage, so she has to manage all the major expenses all alone.

Sarah started out with nearly $187k in debt. About $82k of that was her student loans, nearly $6,500 credit card balances, $80k taken as home loan, car loan was $18k. In November 2018, she made her final debt payment and ended up paying off $195k in 19 months. So, practically she paid nearly $8k in total interest.

I wanted to know how did she manage to save that amount with such limited income. She told me all about her hard work and some unique strategies that helped her to get out of debt.

Let’s have a look at what she has done in the last 19 months!

Step 1 – Listed all the debts

People grow anxious when they list their debts. So, they should have enough willpower to face it. She did it too. One day, she decided to make a list of every single piece of debt she owed.

That was the hard first step. But once she did this part, she became extremely confident about becoming debt-free.

Step 2 – Prepared a solid budget

People need to set up a solid budget which they can follow each month. She also did it with a proper plan. This is how she managed to restrict herself from going into debt each month. It is difficult to reduce your total debts if you are continuously piling up new debt each month. Creating a proper budget and following it will be the biggest and most effective strategy to control your finances.

Once you set up a new budget, at the end of the month you will find some extra money to put towards your debts. Gradually, you can get out of debt faster by just paying down some more than the minimum amounts.

Step 3 – Refinanced student loan

Since her student loan accounted for the biggest part of her debt, she started doing some research on student loan debts. She had some good offers from lenders and refinanced her student loans. By doing this she lowered her interest rate to a good percentage. Also, by using the auto-pay option, she managed to get an extra 0.25% interest rate deduction from the lenders.

Interest rates on a student loan were costing her more in the long run. So, by doing this step she converted a high-interest debt into a lower-interest debt and saved a lot.

Step 4 – Set up a debt payment plan

Remember the debt list? Yes, she lined up all her debts from smallest to largest and started paying them off by targeting the smallest debt first. She started paying off her credit card debts, a $65 to Walmart was her smallest.

This strategy worked well initially as she was making progress on the smaller debts, one by one. This gave her a boost to work more and motivated her to keep making payments to the debts.

Step 5 – Initiated Biweekly payments

What she did is something we do not usually think of. She splits her payments into two each month. She divided her monthly bills in half and paid every other week. She also asked her lenders to consider any additional payment to reduce her balance, not to reduce her next bill. This way her loan balance went down to a decent level.

Step 6 – Start saving on little things

Big tasks are taken care of. Now all she was left with was doing small things that could help her out to save more. So, she started buying groceries and other daily household stuff online rather than going into storefronts. There’s a lot of stuff you can find cheaper online these days. You can even get good cashback if you can buy stuff in bulk. She also uses cash instead of credit cards for purchasing anything, as research says people spend 12%-18% less when they use cash instead of cards.

Step 7 – Started income at home

Sarah could have done anything to get out of debt problems once and for all. And, she chose the right way to increase her monthly income. She sold all unused things she had and earned good money. She sold her clothes, shoes, unused furniture, and her favorite old car to get some serious cash. She believed that by cutting her car loan in half, she could be one step closer to becoming debt-free. She sold her car and put that money towards debt payments.

Apart from that, she also started some side hustle to support her finances. As she is an accountant, she started giving tuitions to students on advanced accounting, economics, and statistics. This way she started earning extra and used that money to support her monthly budget, apart from making debt payments.

Step 8 – Engaged tax refund towards debts

She did something that is very uncommon. As soon as she got her tax refund, she used it to pay down the remaining debt.

You can find out various tips on “how to pay off debt fast” if you search this query on Google or any other search engine. Many websites and blogs may suggest multiple ways to pay off debt. But those multiple, generic suggestions are quite different from the advice given by an individual who faced such a real-time debt challenge. Here, Sarah also experienced the same situation and came out with flying colors.

So, if you think that you can’t get out of debt just because you have a low income, you’re probably thinking it right. However, if you believe that you are going to get out of the situation or become debt-free, and you’re initiating with a low income, you might have to work a little bit hard to find a way. As Colin Powell said – “There are no secrets to success. It is the result of preparation, hard work, and learning from failure.”

Signs you have too much credit card debts and how to reduce them

Signs you have too much credit card debts and how to reduce them

Posted by: consolidatecreditcard_admin on

Credit card debt is rising fast in our country. In November 2018, The New York Federal Reserve revealed that the credit card debt has risen by $36 billion in the US.  It is quite obvious that you are one of those who have huge credit card debt. And, the report is also indicating that people are accumulating more credit card debt day by day, which is not good for their financial health.

Credit cards are becoming the most important tools in our daily financial life. Most people don’t prefer cash transactions; they use credit cards for every purchase.

Using credit cards randomly is becoming a habit for us. But this habit has a pitfall. It doesn’t let us stop purchasing items. We keep shopping with our credit cards beyond our affordability. But, when it comes to paying the bill, people either make the minimum payments or ignore the bills totally. Because, in most cases, the credit card bills are beyond their affordability.

As a result, they soon fall into credit card debts and welcome all the financial hassles in their life.

Warning signs that you have too much credit card debt

In most cases, people don’t realize that they have reached an utterly bad financial phase due to their huge debt. Some people even don’t realize that they are sinking into debt until their daily financial lives become difficult. Thus, you have to understand how much credit card debt is too much.

Here are some warning signs that you have too much credit card debt.

Skipping one credit card bill to pay another

It is not at all wise to skip your credit card payments. You should prioritize your credit card payments. Skipping the payment completely is something that you must avoid. If you find yourself struggling hard to find enough cash to make all your credit card payments, then you are already in huge debt. You shouldn’t accumulate more debt.

Charging is more than what you pay

In case you are charging a lot to your credit cards, you need to pay the bills on time. If you are only charging and not paying off your credit card bills, then you are drowning in credit card debt. Thus, do not leave this unattended as this could cause a severe debt situation.

You are only paying the minimum balance only

If you are paying only the interest, the balance continues to grow. Thus, you shouldn’t only make the minimum payments to the outstanding balance. Please pay the full amount and within time. If you can’t pay the full balance and you are only paying the minimum balance, then you are in the vicious cycle of credit card debt. You should get out of it as soon as possible. Otherwise, you will soon get the creditor’s calls.

Ignoring credit card statements

It is not at all advisable for you to ignore your credit card bills. You should realize that ignoring your bills will not at all help you as your debts will keep on increasing. If you have credit card debts, then it is best to tackle this debt before it gets out of control. If you are ignoring your credit card bills as it gives you a panic attack, then you are already sinking into debt.

Using credit cards to meet your fundamental needs

You should realize that your income should be at least sufficient enough to help you buy things that you need for your everyday use. These may be items like clothing, food, gas, etc. Buying things with credit cards and not paying the balance in full indicates that you are in credit card debt. If you are using multiple credit cards for basic things as your bank account is overdrawn, then you are in huge debt. If left unattended, this situation could lead to excessive credit card debts.

You are not making credit card bill payments

If you have started missing credit card bill payments and are not even making the minimum payments, then you are in debt trouble. You should find ways to repay all your outstanding debts so that you can get back to a normal financial life.

You are realizing that the paycheck is not sufficient

If you are unable to even live paycheck to paycheck as your debt has started consuming half of your monthly income, then you are in huge debt. You should take solid steps to get rid of your debts so that you can manage other household costs with your income.

How can you reduce your credit card debt?

When you use your credit card irresponsibly, you can come under a mountain of credit card debt that may get very difficult to eliminate.
But there are some ways you can reduce your credit card debt and also get out of it.

Here’s how

1. Consolidate your debts

You can take out a consolidation loan to repay all your outstanding balance. By doing so you just need to manage only the new loan. However, you shouldn’t miss a single payment for the new loan. Otherwise, you will be in debt again.

However, you may not be able to take out a loan at a lower interest rate since you have a low credit score due to huge debts. But you should try your best to find a consolidation loan that comes with a low-interest rate.

If you can’t get a loan with a favorable interest rate, then you can consolidate your debts by enrolling with a debt consolidation company. This way you can get rid of your credit card debts.

2. Repay the highest interest rate debt on your own

If you want to reduce your credit card debt fast, then you should attack the debts that have the highest interest. You can repay the highest interest debt by following the debt avalanche method.

In this method, you need to arrange your debts from the highest to lowest interest order. Now, you need to make larger payments to the highest interest debt while making minimum payments to the other debts. Keep making large payments until the debt is paid off.

Once you repay the highest interest debt, target the second-highest interest debt and make a large payment toward it while making minimum payments to the other debts.

Follow this method until all your debts are paid off.

However, to follow this debt repayment method, you should have a good income. So, before following this method, try to increase your income as much as possible so that you can make bigger payments to the highest interest debt.

3. Settle your debts

You can also settle your credit card debt through a debt settlement company. You just need to enroll in the settlement program. The rest will be taken care of by the settlement company. After a certain time, you will be debt-free.

Lastly, to avoid further credit card debts, you need to build an emergency fund. Because, when emergency situations arise, you may need a lot of money all at once. If you do not have an emergency fund, then you will have to either use your credit card or take someone else’s help. In maximum cases, you will be forced to use your credit cards to pay for such emergencies. These debts will be very difficult to pay off as your budget will already be stretched. So, after getting rid of your current debts, practice good financial habits so that you can build an emergency fund and avoid credit cards for your basic needs. If you can incorporate good financial habits, you do not have to drown in debt and seek debt relief.