Deep in Debt?

Deep in debt?

It’s so easy to ignore the situation and hope it will go away. You might think that you’ll skip a payment here and there and get through it. But this is very risky. Start by acknowledging that you have a serious debt problem.

Then list out all your debts. Prioritise by interest rate, not by amount.  A credit card with 20% interest goes way above a $100,000 housing loan on 8% interest.

Then call your credit card company to negotiate for a lower interest rate. If this doesn’t work, tell them you’re looking to move to another company. Rather than losing you as a customer, they would give you a better rate. But, being the prudent customer you are, you will look around for an alternative credit card provider who can provide you with a better rate. Ask for a 0% interest rate for 12 months on your balance transfer. Remember, this is business, not a class on friendship. Every dollar counts.

But before you switch your credit card debt to another card, consider going to your housing loan provider and asking them if they cam merge your current debts to your housing loan. This may be done via another round of financing. Worst case scenario, take out a personal loan with them. Since you already have a housing loan with them, ask for a lower interest rate on the personal loan. Don’t be shy to ask. You have nothing to lose. And they will want you, trust me on this. It is much better to consolidate all your debts into a low interest Personal Loan than into a balance transfer credit card unless you’re sure you can clear the debt on the balance transfer credit card within the time frame.

Consider some financial counselling, if all else fails. It’s good to get some expert help. There are government agencies providing help without the need for any payments. Use these services. Don’t be shy or angry. It’s better to bite the bullet now than to sink deeper into debt. Schools don’t teach use financial planning, so its no surprise that most of us fail in it.

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How to Pay Off Your Credit Card Debt

If you find yourself making interest payments every month on your credit cards and want to eliminate this type of debt, your first step should be to assess your income and expenses. Total your monthly expenses and subtract them from your income. This is your disposable income after expenses, the amount you have to spend or save.

The next step is to stop charging items on your credit cards. Pay cash for goods and services, then analyze your credit-card debt. Determine which cards charge you the highest rate of interest. If you carry a balance and have credit cards with high interest rates, you are wise to look for a card with a lower rate and transfer your balances. Some cards will give extremely low rates for up to six months to attract new customers. You may wish to transfer your balances several times until you have your balance paid off.

If you are struggling to pay off credit-card debt, consider selling items you no longer need or replacing expensive luxury items (such as a pricey vehicle) with a less costly one. Many consumers find they can eliminate luxuries such as cellular phones, multiple phone lines (and optional calling features), cable television, high-speed Internet access, multiple vehicles and seldom-used sports equipment such as boats, all-terrain vehicles and snowmobiles.

Use the cash raised or saved to pay off credit-card balances. When your finances improve and you have money in the bank, you can then purchase another luxury item if you think it’s a wise choice. If you must finance a large-ticket item and you have a stable, reliable source of income, consider taking out a home-equity loan on your residence instead. You’ll likely find the interest rate to be much lower.

After obtaining as favorable an interest rate as possible and eliminating costly luxuries, rank your credit cards in order of their interest rates, and use your disposable income to completely pay off the card with the highest rate. Once you pay that one off, close that account and destroy the card. Then focus your attention on the next card, and continue doing the same until you have paid off all your credit cards. Once your credit-card debt is gone, you’re much better off with only a few cards—not the dozen or more carried by so many people.