Free money is one of the best gifts in the world. Too bad there is no such thing as free money, except maybe during holidays when you were ten years old. However, most of us make the mistake of thinking of our credit cards as free money, or at least ‘easier money’. This is how many of use get into credit debt.
I’ll be honest, credit debt is a pain. I’d rather have my wisdom teeth pulled out then have to pay back credit debt. I’m sure you would too. But you don’t need to spend still more money to see a credit counselor. Here are ways to help pay off your debt all by yourself.
The first credit debt tip is to actually start paying off your credit! This may seem obvious, but so many people ignore their credit debt because they don’t want to deal with the hassle of paying it back. Trust me, ignoring credit debt will lead to more debt, no matter how much you try. There are some payback methods that help reduce your credit debt as much as possible.
The second credit debt tip is to use your savings to pay off your debt. This may seem scary, but it makes sense. Your interest rate for your credit card is most likely 10% or more. Your interest on savings is a lot lower. Basically, by transferring money into your savings instead of your credit card, you are throwing away money.
So, once you have enough savings that you feel comfortable with, start putting payments directly towards your credit debt.
Do not pay less than the minimum. If you are able to at least pay the minimum on your credit debt, you won’t be hit with costly fees. These fees can be anywhere from $10 (for the lucky ones) to hundreds of dollars. Although you won’t be paying off as much principle as possible, at least your credit debt won’t grow out of control. A surefire way to see your credit debt spiral into a mountain is to pay under the minimum.
Be brave and call your creditors. Ugh, this one is hard. You’ve been ignoring those annoying people for months now. But, face your fears and call them up, trying to be as polite as possible. Here’s the thing about creditors: the government doesn’t guarantee their money. This means that if you don’t pay them back, they are not allowed to garnish your wages or put you to jail. This helps you, because they want their money, and if the only way to get it back is to cut you a deal, then they most likely will. Most creditors are not unreasonable people.
When I was laid off and got into massive credit debt, I called American Express and explained my situation. The representative put me on a program where for a year, as long as I didn’t purchase anything on my card, I would have a 0% interest rate. I was able to pay principle off for a year and 9 months later, I had a $0 balance! After that worked, I called Bank of America. They wouldn’t put me on the same program for my credit debt, but they waived two of my late fees when they heard of my job loss, which saved me over $100.
If you are struggling to make payments towards your credit debt, give them a call and ask what they can do. Tell them at this point, it is impossible for you to make any payments, so you’ll let it go to collections unless they can work something out so that your payments are smaller.
If your credit debt goes into collections, your credit history will suffer, but it also means that the credit card company gets paid a much smaller amount for the credit debt. It’s a lose-lose situation and the credit company will try to work things out reasonably if you talk to them and present them with a better option. They’d rather get all their money back eventually rather than only a small portion of it right now.
This tip is the hardest. The reason you are in credit debt is most likely you’ve been purchasing things you can’t afford. If this is the case, then you need to LIVE WITHIN YOUR MEANS.
How exactly do you do that? Well, first you need to come up with a budget. Write down how much you make versus how much you spend. Divide the list between things you NEED versus things you WANT.
Remember that even small daily expenditures add up. Sacrificing your daily Starbucks will save you $1,000 per year! Other things to consider: moving to a smaller place, relinquishing bad habits like smoking and drinking, cancelling subscription services like cable and internet, cooking meals at home rather than going to fancy restaurants, taking a packed lunch to work instead of eating out.
Next, try switching some items from the NEED column to the WANT column. One example could be a car payment. More than likely, you live in an area with reliable public transportation. If you really wanted to, you could try taking the train or bus to work one day a week. If you find it is not as bad (or better) than you expected, you may be able to work on giving up your car. No, not forever. Just until you’ve paid off your debt. How many sleepless nights have you had recently because of your debt? Exactly. Give it a shot, then at least you’ll know you tried.
If you own your car, selling it and learning to use public transport can also give you a nice lump sum to put towards your credit card debt. You can buy another car when you’re in a better place financially.
If you have a luxury car, you can save a bundle of dough by trading it in for a hard-wearing Toyota or Honda. These two brands can be bought exceptionally cheaply, rarely go wrong, run to 200,000 miles+ whilst keeping their resale value, and parts are extremely cheap. Another benefit of doing this is that your monthly insurance payment will drop dramatically if you have a cheaper car.
Pay off your smaller debts first. This is more of a motivating/ psychological credit debt tip, but it works. Say you have three credit cards, one with -$1,000 on it, one with -$4,000, and the last with -$10,000 . If you split your payments, you won’t see noticeable results in a couple of months, which may be depressing and de-motivating.
However, if you work on paying off the -$1000 card first before moving onto the second, you will feel like you are making progress. By the time you start paying your $10,000 credit debt, paying it will already be a habit and you won’t lose motivation as easy. However, make sure to keep paying your minimum on all the debts to see eventual results.