How to Pay Off Credit Card Debt Faster

I've received several questions from Money Girl podcast listeners about paying off credit card debt. It's a fundamental goal because carrying card balances come with high interest, a waste of your financial resources. Instead of paying money to card companies, it's time to use it to build wealth for yourself.

7 Strategies to Pay Off Credit Card Debt Faster

1. Stop making new card charges

If you're carrying card balances from month-to-month, it's essential to understand what it costs you. As interest accrues, it can double or triple the original cost of a charged item, depending on how long it takes you to pay off.

The first step to improving any area of your life is to acknowledge your mistakes, and financing a lifestyle you can't afford using a credit card is a biggie. So, stop making new charges until you take control of your cards and can pay them off in full each month.

As interest accrues, it can double or triple the original cost of a charged item, depending on how long it takes you to pay off.

Yes, reining in your card spending will probably require sacrifices. Consider ways to earn extra income, such as starting a side gig, finding a better-paying job, or selling your unused stuff. Also, look for ways to cut costs by downsizing your home, vehicle, memberships, or unnecessary expenses.

2. Consider your big financial picture

Before you decide to pay off credit card debt aggressively, look at the "big picture" of your financial life. Consider any other debts or obligations you should prioritize, such as a tax delinquency, legal judgment, or unpaid child support. The next debts to pay off are those already in default or turned over to a collection agency.

In many cases, not having a cash reserve is why people get into credit card debt in the first place.

Assuming you don't have any debts in default, focus your attention on your emergency fund … or lack of one! I recommend maintaining a minimum of six months' worth of your living expenses on hand. In many cases, not having a cash reserve is why people get into credit card debt in the first place.

3. Make more than the minimum payment

Many people who can pay more than their monthly minimum card payment don't do it. The problem is that minimums go mostly toward interest and don't reduce your balance significantly.

For example, let's assume your card charges 15% APR, you have a $5,000 balance, and you never make another purchase on the card. If your minimum payment is 4% of your card balance, it will take you 10½ years to pay off. And here's the worst part—you'd have paid almost $2,400 in interest!

4. Target debts with the highest interest rates first

Make a list of all your debts, including credit cards, lines of credit, and loans. Include your balances owed and interest rates charged. Then rank your liabilities in order of highest to lowest interest rate.

Getting rid of the highest interest debts first saves you the most.

Remember that the higher a debt's interest rate, the more it costs you in interest per dollar of debt. So, getting rid of the highest interest debts first saves you the most. Then you can use the savings to pay more on your next highest interest debt and so on.

If you have several credit cards, evaluate them the same way—tackle them in order of highest to lowest interest rate to get the most bang for your buck. And if a credit card isn't the most expensive debt you have, make it a lower priority.

In general, debts that come with a tax deduction such as mortgages, home equity lines of credit, and student loans, should be paid off last. Not only do those types of debt have relatively low interest rates, but when some or all of the interest is tax-deductible, they cost you even less on an after-tax basis.

5. Use your assets to pay off cards

If you have assets such as savings and non-retirement investments that you could use to pay down high-interest credit cards, it may make sense. Just remember that you still need a healthy cash reserve, such as six months' worth of living expenses.

If you don't have any or enough emergency money saved, don't dip into your savings to pay off credit card debt. Also, consider what you could sell—such as unused sporting goods, jewelry, or a vehicle—to raise cash and increase your financial cushion.

6. Consider using a balance transfer card

If you can’t pay off credit card debt using existing assets, consider optimizing it by moving it from higher- to lower-interest options. That won’t make your debt disappear, but it will reduce the amount of interest you pay.

Balance transfers won’t make your debt disappear, but they will reduce the amount of interest you pay.

Using a balance transfer credit card is a common way to optimize debt temporarily. You receive a promotional offer during a set period if you move debt to the account. By transferring higher-interest debt to a lower- or zero-interest card, you save money and use it to pay down the balance faster.

7. Consolidate your high-rate balances

I received a question from Sarah F., who says, “I love your podcast and turn to it for a lot of my financial questions. I have credit card debt and am wondering if it’s a good idea to get a personal loan to pay it down, or is that a scam?”

And Rachel K. says, "I love listening to your podcasts and am focused on becoming more financially fit this year. I have a couple of credit cards with high interest rates. Would it be wise for me to consolidate them to a lower interest rate? If so, will it hurt my credit?" 

Depending on the terms you’re offered, using a personal loan can be an excellent way to reduce interest and get out of debt faster.

Thanks to Sarah and Rachel for your questions. Consolidating credit card debt using a personal loan is not a scam but a legitimate way to shift debt to a lower interest rate.

Having an additional loan added to your credit history helps you build credit if you make payments on time. It also works in your favor by reducing your credit utilization ratio when you reduce your credit card debt.

If you qualify for a low-rate personal loan, here are some benefits you get from debt consolidation:

  • Cutting your interest expense
  • Getting a fixed rate and term (such as 6% APR for 60 months with monthly payments of $600)
  • Having one monthly debt payment
  • Building credit

A couple of downsides of using a personal loan to consolidate debt include:

  • Being tempted to continue making credit card charges
  • Having potentially higher monthly loan payments (compared to minimum credit card payments)

While it may seem counterintuitive to use new debt to get out of old debt, it all comes down to the interest rate. Depending on the terms you’re offered, using a personal loan can be an excellent way to reduce interest and get out of debt faster.

What should you do after paying off a credit card?

Credit cards come with many benefits, such as purchase protection, convenience, and rewards. Don't forget that they're also powerful tools for building credit when used responsibly. If maintaining good credit is one of your goals, I recommend that you keep a paid-off card open instead of canceling it.

You don't need to carry a balance from month to month or pay interest on a credit card to build excellent credit.

To maintain or improve your credit, you must have credit accounts open in your name, and you must use them regularly. Making small purchases charges from time to time that you pay off in full and on time is enough to add positive data to your credit reports. You don't need to carry a balance from month to month or pay interest on a credit card to build excellent credit.

To learn more about building credit and getting out of debt, check out Laura’s best-selling online classes:

  • Build Better Credit—The Ultimate Credit Score Repair Guide
  • Get Out of Debt Fast—A Proven Plan to Stay Debt-Free Forever

Source: quickanddirtytips.com

9 Ways to Pay Off Your Debt In As Little As 30 Days

The post 9 Ways to Pay Off Your Debt In As Little As 30 Days appeared first on Penny Pinchin' Mom.

Paying off large debts usually requires a long-term game plan. But just a couple of easy steps can help you pay off your smaller debts in a short time frame. Want to buckle down and eliminate debt quickly? Here are nine ways to pay off your debt in 30 days or less.

PAYING OFF DEBTS FAST

1. Set a realistic goal

Most people can’t reasonably expect to quickly pay off a mortgage or new car loan. To eliminate debt in 30 days, you’ll need to pick the one you can realistically pay off. Look for a small credit card balance or a loan that’s approaching a zero balance.

2. Use the ‘snowball method’

With the snowball method of debt repayment, you focus on paying off your smallest loans first, working in order of smallest to largest. You make minimum payments on your other debts, and make larger payments on the smallest debt until it’s paid off. Successfully paying off a smaller debt will provide you with a psychological boost and free up a little extra monthly cash to put toward the next smallest debt.

Another strategy is to focus on debts with the highest interest rates first, as that will save you more money in the long run — though this strategy is a longer-term debt repayment method.

3. Go on a 30-day spending diet

Just like extreme food diets, spending diets are tough to maintain for a long time. But slashing your spending for 30 days is achievable, and you’ll free up extra cash to put toward your debt.

Analyze your current budget and spending habits, and look for every opportunity to cut expenses. You could cook all your meals at home instead of dining out, watch Netflix instead of going to the movies or take public transportation instead of driving or hailing cabs. At the end of the 30 day period, all the money you saved should be put toward your debt.

4. Stop using your credit card

If you’re trying to pay off a credit card balance in 30 days, it’s common sense to temporarily stop using it. But you should avoid making too many purchases on any other credit cards you own, or you’ll end up with a different credit card balance to pay down. This philosophy applies to other debts, too.

Once your credit card is paid off, you may be tempted to close it. But unless you can’t trust yourself to responsibly manage your credit card, you’re better off leaving it open to boost your credit score. (Here are 7 other credit myths, debunked.)

Remember, the best way to use a credit card is to only make purchases you can afford to pay off in full each month.

5. Find extra sources of income

Finding an extra source of income for at least 30 days can help you earn cash for debt repayment. You could teach music lessons, tutor kids, mow lawns or drive for Uber. All the extra income you earn should go directly to your debt.

Looking for some extra income ideas? Check out our list of ways to work from home.

6. Redeem your cash back

If you have a stack of points or cash back rewards in your credit card account, now could be the right time to redeem them. You may be able to put your rewards directly toward your credit card balance, or cash out the rewards and use the funds for debt repayment.

7. Make extra payments

This may sound obvious, but you should consider making extra payments throughout the 30 day time period as cash flow allows. Saving up your extra cash for 30 days for a one-time payment leaves you at risk of spending it elsewhere. Instead, make payments as soon as extra cash comes in.

8. Get a debt consolidation loan

Debt consolidation loans can help you roll multiple debts into a single, manageable loan with a potentially lower interest rate. It’s a good strategy if you have trouble keeping track of your payments, or have several high-interest debts. This may not help you pay off your debt in 30 days, but you could get a lower interest rate and zero out your balance with your current creditors.

9. Open a balance transfer card

If your current credit card’s interest rate is making it difficult to pay off, you may want to consider a balance transfer card. Balance transfer cards will let you transfer your existing credit card balances to a new card with a lower interest rate – many cards offer 0% APR for introductory periods of 12 months or more. This strategy also might not allow you to pay off your debt quickly, but you will eliminate the balance on your high-interest cards.

Want more ways to save up to pay off those debts? Here are 25 ways you can start saving right now.

By Brian Acton, Policygenius.  This article originally appeared on Policygenius.

 

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Convince Your Spouse You Need To Get Out Of Debt

The post Convince Your Spouse You Need To Get Out Of Debt appeared first on Penny Pinchin' Mom.

Need to convince your spouse you need to get out of debt?  You can’t just tell him or her.  You need to address it in the right way.

How to Convince Your Spouse You Need To Get Out of Debt -- Without Fighting!!

Getting out of debt and taking control of your finances is important to your relationship.  Whether you are just starting out or have been together for 25 or  more years, you have to be in the same page financially, or you will be destined for failure.

So, what happens if your spouse is a spender and you are a saver?  Or, what do you do if you want to create a budget you both contribute to, but your spouse refuses to help?  What happens if you want to get out of debt, but your spouse thinks you are fine?

These are questions I get over and over again from readers just like you.  Get my answers on what you can do if you find yourself in any of the following situations.

CONVINCE YOUR SPOUSE YOU NEED TO GET OUT OF DEBT

I WANT TO GET OUT OF DEBT, BUT MY SPOUSE DOES NOT AGREE

This is a very common scenario.  One person feels that there is too much debt and their spouse or partner thinks that they are doing just fine.  What do you do in this situation?  I’ve got the things you can try to help get your spouse or partner onto the same page as you.

 

SET A DATE

Timing is everything when you are discussing debt with your spouse or partner.  If you casually mention it over dinner, it may not actually resonate that you are serious.

Set up a date with your significant other.  Carving out time to have a real, honest discussion about your finances can make all the difference.

 

USE “WE”  – NOT “YOU”

When you sit down to talk, your money and finances should be discussed as “we” and never as “you.”

For instance, instead of saying “You are spending more than you make” – say “We are just spending a bit too much money lately.”

When you are in a relationship, your money is no longer yours and mine, it is ours.  Addressing your debt should be addressed in the same way.

 

NAGGING NOT ALLOWED

If, after you have this discussion, your spouse is still reluctant to get started, take a break.  Circle back around a few weeks later and have another discussion.

The thing you do not want to do is nag him or her about it.  That will create more resentment and be much less successful in developing a plan you both can follow.

MAKE SURE YOU CAN STILL HAVE FUN

The main reason many people are reluctant to get out of debt is they fear that they will not be able to spend any money on anything at all.  That does not have to be the case.

Talk to your partner about your budget and show him or her how you can still leave money for dinner out or the weekly movie dates you love to have together.

One way that my husband and I do this is that we have a “mad money” fund.  This is money which can be spent on whatever we each want.  We designate an envelope for each of us.  When our money is gone, we are done spending.  We actually have turned this into a challenge to see which of us can actually go the longest without spending any money!  After a few months, we agreed that we both won and then turned around and used that money in planning a Disney vacation.

You are a team and together you will need to work up your budget so it works for both of you.

 

BE WILLING TO COMPROMISE

When you sit down for your meeting, don’t have everything planned out.  As tempting as it might be to have the budget all mapped out and show it, that may actually result in your partner being more resistant.

When you talk, take the time to truly listen to what your partner has to say.  Once he or she voices concerns, you will also have a chance to make your case.

When you show that you really do want to listen and work together on this journey, he or she may be much more willing to join you.  However, if you shut him or her out of the conversation, you will not be successful.

 

CREATE A PLAN TOGETHER

Once you both are on the same page with your debt, it is time to make a debt payoff plan. It should include a list of your debts and a way to track your success.  You will work together to achieve your financial goals.  Go through everything together and make sure you both agree to how much you will pay on the debt, your budget and much more.

Putting it in writing will help you both focus on the big picture and give you accountability to one another.  Before you know it, you will be on the path to financial freedom.

 

 

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Budgeting For Beginners: A FREE Five Day Quick Start Course

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Learn How to Budget

 

If you feel stress about money, worry about paying your bills or are just tired of trying to find a way to rob Peter to pay Paul, you aren’t alone.  In fact, I get it.

I really get it.

I tried to figure it all out on my own and failed miserably. That lead me to declare bankruptcy.  While it wasn’t my finest moment, it had to happen to lead me to the place I am today.

Sometimes, our biggest mistakes force us to learn the most.  For me, thinking that I could just try to wash my hands of my financial problems was mine.  I did not take the time to figure out the right way to get control over my money and stay out of debt. Bankruptcy was the easy solution – but the wrong one.

Before filing, I had tried it all.  I organized my bills to pay them on time. I worked with debt consolidation companies to try to lower my payments. I put spending freezes in place, just to blow that a few days later.

Nothing I had done was working.

So, I did what I thought was right. I contacted an attorney and filed.

As I said, that wasn’t the answer for me.  I never took the time to get to the root of why I was looking at money the way I did.  I did not want to face my own demons head-on.  And that lead me to build up more debt…..even after bankruptcy.

Once my bankruptcy was behind me, I married my husband.  We both knew that I wanted to stay home and raise our children.  We thought that we would be OK when I quit my job, after all, my husband had a good income.

Boy.  Were we wrong.

After our daughter was born, reality set in.  The truth is, we did not really know where we were spending our money and continued to live the same lifestyle, even though our income had dropped.

Our finances were a mess.

Then, one night, after a rare dinner out with friends, the light bulb came on.  Both of us realized that we could make some changes.

From that moment on, things were different.  We both had revelations:

  • We figured out we had to have a budget.
  • We learned why we were spending.
  • We worked together to create an actionable plan.
  • We were on the same team and found new ways to save more money than ever before.
  • We had a financial plan in place.

For us, it was our REBOOT moment.  When we took control of our finances, it was like we started living again.  When we stopped trying to hard to fight it and allowed ourselves to be vulnerable to change, it happened.

This is true for anyone who wants to learn how to budget.  You have to allow yourself to be open to the change.  You need to be willing to try something new.  After all, what you are currently doing isn’t working, is it?  What more have you got to lose?

That’s where the Free Five Day Money Management Course can help. This is a simple course that anyone can take – no matter your financial situation.

You will learn:

  • How to understand your own attitude towards money
  • Really see where you spend every penny you make
  • Create a workable budget
  • Develop a plan to dig yourself out from debt
  • Finally feel in control of your finances

Like I said above, this is free.  I will not charge you a dime to take the course. Your first lesson will arrive in your inbox tomorrow morning, so you can wake up and be ready to jump in and learn.

Best of all, I’m here with you.

You aren’t alone.

Sign up now and take control of your finances. What have you got to lose?

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