Wednesday, July 5, 2017

How To Pay Off Your Debt Now

We all need credit to survive in today’s economy. Having some debt is not necessarily a bad thing. How many of us have enough cash on hand to buy a house outright ?  We need a credit card just to rent a car.


Too much debt on the other hand is bad and eliminating excess debt should be a top priority for all.  There are several ways to approach the situation but the first step to accomplish any task is to understand it.


The quickest way to curb your pending may be to become a cash-only consumer.    If you do not have the cash, you do not need to buy it. Stop using your credit cards.  


Getting out of debt is possible.  While this may not easy, possibly the hardest thing, it can be accomplished.  You need to develop and follow a plan and look for money saving opportunities.  


Many recommend creating an emergency fund, but I do not think this is a wise move.  If you owe $25,000 at 18%, why would you save anything at 1% or 2%?  Throw every available dollar at your debt.  This is already an emergency!  


Some suggest extreme measures to cut expenses like lowering your thermostat, or buying soon to expire foodstuff because it is on the clearance rack.  I am not going to wear a coat in my own home to save a few dollars, that is ridiculous.   There are more sensible ways to save money.


  • Amazingly, this is a hot button for many; I can't understand why, the math is all there. Make your coffee at home.
  • Brown bag your lunch, do it often.
  • I love eating out, I go easy on the booze and skip the appetizers and the extras.
  • Use store reward programs to earn cash back and discounts.  Stick to stores you regularly visit and get the most bang for your buck by buying generic when practical.
  • I am not a fan of the side hustle because it often times becomes a necessity.  Shoot for a goal. Pay off a credit card or airfare for your trip.  Once achieved, you are done...
  • Call your insurance provider and negotiate a lower payment for your home and car  insurance.  Shop around if you are not satisfied.
  • Contact your cable/satellite provider and negotiate your package, or subscribe to a streaming service and get rid of it altogether.
  • Buy your non-perishables in bulk. Anything that does not go bad over a short period of time. Your detergents, paper products and the like.


The things you are eliminating are not necessarily gone forever. You can  still have the occasional coffee, maybe once a week is much better for the balance sheet than every day. See how much that daily cup may actually cost.  Try out the calculator for yourself.


A simple phone call to the card issuers is all that you may need to get the interest rate reduced. A point or two reduction can translate into hundred even thousands of dollars in savings.  Loyalty, credit score and  history of on-time payments weigh heavily when looking for a rate reduction.  Shopped around and were offered a lower rate?   


Transfer balance offers are tempting.  More so if a substantially lower interest rate is offered.  The key is to pay off the debt within the offered low-interest-rate window.  This is usually limited to 12 months.   Otherwise the interest rate may go up and you will fall back into the cycle.   Keep in mind that these offers normally include a balance-transfer fee.


Never miss a payment.  The late fees are wasted money, they can potentially damage your credit score, and raise your rates.  That money is better served paying down debt.


Your financial institution may offer a loan large enough so you can pay off credit card balances and replace  multiple payments with one single loan that offers a lower interest rate.  Be aware that the lower interest rate may only be temporary.  You also need to read the fine print for any associated fees.  These might even negate the advantage of consolidating your debt.


The minimum payment due you see on every bill sounds enticing, but it is a very expensive proposition...For you, that is; the bank loves it. For them it is all profit! That is why it was created.  You should strive to never carry a balance.  Now that you need it, use it wisely.


Now that you have decided to aggressively attack your debt you should use one of the more common methods.  To this day I still use pen & paper to jot things down, even if just the key points.


The most common are the snowball method whereby one pays off the account with the smallest balances first, while paying the minimum on all remaining debts.  Once the first item is completely paid off, you tackle the next item. The avalanche method focuses on the highest interest rate first.  Like with the snowball method all others get minimum payment.  This process is repeated  until all the debts are paid.


The benefits of the snowball method are primarily psychological. As there is a sense of accomplishment. This approach works for those that need a quick “win” to stay motivated. I am a proponent of utilizing the avalanche method because it saves both time and money, making it the more logical way to pay off your debts.


Whatever method you choose, stay the course.  Eliminating debt is one of the pillars of financial freedom. You can now start the next phase-saving for retirement. Getting started is much easier than many think.


You did not go into debt overnight, and you will not get out of debt by tomorrow; It may take several years.  Rome wasn't built in a day.  Stay focused on your goal and you will get out of debt.

I am not a financial advisor.  I hold no fancy degree and as such this is not financial advice.  Seek the advice of  a professional.