Best tips to become debt free.
The average family has thousands of dollars in credit card debt as well as other financial obligations, such as a mortgage, car loans, and more. They also pay a large amount of money towards their interest costs every month in order to service their debt on their credit cards only. Add in outstanding medical bills, home loans and/or their monthly rent expense and it is no wonder why many families are truly struggling. People are having difficulty catching up, not to mention actually getting ahead. Find three of the best tips below for how to become debt free.
If people paid off their debts, while it will vary the savings on their interest payments would amount to hundreds of dollars per year. They would save thousands of dollars over a few years. Remember, it is not just credit card debt that causes people to struggle. There are many other financial commitments as well.
Many households have department store revolving credit cards, cars or student loans and other non-secured debt such as personal or payday loans. These only add to the amount of bills that people need to pay every month. Too many individuals are just one minor illness, temporary job loss, reduction in work hours, or a variety of small steps away from declaring bankruptcy.
Reduce interest rates
People are often paying hundreds if not thousands of dollars per year in interest on their credit cards and medical bills. This can in effect be thought of as wasted money. The interest rate on credit card debt is incredibly high, and depending on the lender and the borrowers credit score, those rates can be as high as 20%. Or they could even be higher if the individuals has a poor credit rating. Take a few minutes to find out what interest rate is now being paid on any credit card bills and more than likely the borrower will be shocked.
Pay off debts
While easier said than done, paying off credit card debts (and medical expenses once the cards are paid off) needs to be a household’s highest priority. The easiest way to do this is to live beneath their means. Another option is to try every avenue to increase the household income. Find some of the top tips mentioned below. Using them properly can go a long way to help people become debt free.
Tip #1 - If your credit scores and rating are in “decent shape”, explore transferring your high-interest rate balances to a lower rate credit card account. While there may be an upfront cost, if the new rate is low enough it can offset that transfer fee. Find the best credit cards to try this with.
It is important to note that most credit card companies and banks offer a very low interest “introductory” rate for three or six months, and some offer zero interest rate deals as a come-on to get your business with them. People can keep their eyes on these deals.
The next step to take as part of tip #1 is to act right before or soon after the low interest rate grace period on the new card expires. Beware that the interest rate that the borrower will pay will increase to the normal amount for their situation, and the rate could therefore double or triple if not even more. Now before this occurs the next step and really the key to making this strategy work is that the customer must be willing to, and also able to, move their outstanding balances to another new low introductory rate card when the special rate expires on the first credit card.
So what you basically need to do is to keep transferring your balance from one credit card to another. If the borrower were not to do this, and doesn’t move their unpaid balance to a lower interest rate, then they will save no money on the amount of interest you need to pay every month. In fact they will lose money from the higher rates and transfer costs.
The last step, and a key part of the tip to follow in order to pay off debts, is discipline. In other words the customer must take the money saved by the temporary lower interest rates and low payment associated with them and pay down the principal on all of their credit cards. So live within means and do not overspend. Just keep repeating this process of transferring a balance and paying it down until the credit card debt is paid off in full.
Use a debt management plan
Many credit card issuers, including GE Money and Wells Fargo among others, are providing families relief from debt management plans (DMP). This is our second suggested tip. A debt management plan can reduce the household’s interest rate, extend their payment terms, or even lower their principal. The program can be tailored to a certain situation. Read more on assistance from debt management plans.
Pay more principal on debts every month
To accelerate the time it takes you to eliminate your credit card debts, no matter what tip number is used, pay a little more money every month. For example, if the customer were to make just the minimum monthly payment on their bills it takes much longer. Say they have $10,000 in total outstanding debt and are paying a 21% interest rate. Using this example it would take about 16 years and 10 months to pay that credit card debt off at $180 per month.
However if the borrower were to increase their monthly payment amount by just $40 per month, to only $220, they could have that same debt paid off in 7 years and 8 months. That is less that half the time if you add just $40 per month to a payment. It doesn’t sound too unrealistic. In addition, the borrower would save thousands of dollars in interest costs over the years.
Saving $40 per month to do this is not that difficult. Skip buying the coffee from Starbucks or somewhere else, brown bag lunch to work a couple times per week, give up smoking, eat out less. Do whatever it takes to pay extra on the debt as the impact is huge!
Consolidate credit card and other debts
Tip #3 -Anyone can become debt free and save big on interest costs by consolidating their debts, which is often a free process. Debt consolidation is when the borrower will gather all of their smaller accounts that are considered high-interest rate and consolidate it or put it into one big pile. The key to make this tip work is that the new APR rate needs to be competitive.
Once that is done, the borrower can take out one large personal loan to pay it down. The major benefit to debt consolidation is that the new source of funds that is taken out will almost always have a lower interest rate that any of the smaller, individual debts. More on debt and bill consolidation.
The lower interest rate on the new loan will make for a lower monthly payment. So it in effects saves money on future monthly bills, and as a result of this lower payment, the debt holder can make additional monthly payments. All of this extra money can go towards outstanding accounts. Since there will be more money paid to the principal balance, it will allow the customer to pay off the outstanding medical or credit card debt sooner. As the example above shows, there are major advantages to paying off debt in a shorter period of time.
These three tips are only several of the numerous ways that can help speed up the process of debt reduction. There are many other things that families can do, and most actions will not cost them a thing. Never give up the goal, and dream, of becoming debt free! Do not rely on bankruptcy, or some unlikely government bailout to help.
Learn about credit card debt forgiveness.
Another option is as follows. Many banks and lenders are beginning to be more open and more willing to forgive credit card debt. Or they are able to help consumers in other ways. Communication is one of the key to make this work. Learn more on how to get out of credit card debt.
Explore payday loan laws
Most state government have implemented laws and regulations to help people get out of debt, in particular around payday loans. More regulations are protecting consumers. The interest on these types of loans can be in the hundreds of percents, which is unaffordable. Many people have turned to these salary advance loans in difficult times. Click here to learn about the laws for your state.
At the end of the day, it is important to eliminate debt and the money that is being spent each and every month on paying the interest for those financial obligations. Reducing those monthly payments can free up the household’s money for paying other types of bills and expenses that the family may have in their life. So there are numerous benefits to taking action. Follow these fairly simple tips and take this advice that may help borrowers become debt free.