You can throw the reminders in the Cuisinart or chuck them into a garbage can, but that won't make the debt go away. Debt hovers like a carrion bird over a dying beast, with annual rates of 20% or more compounded monthly, month in and month out. You can't wish it away. But you can pay it down with determination, our free debt-fighting resources, and the good graces of a few wealthy relatives (see tip No. 5). Here are nine ways to get out of debt:
1. Pay more than the minimum First, break the habit of paying only the minimum required each month. Paying the minimum -- usually 2% to 3% of the outstanding balance -- only prolongs the agony. Besides, it's precisely what the banks want you to do. The longer you take to repay the charges, the more interest they make, and the less cash you have in your pocket. Don't play their selfish game.
Like previously mentioned, identity theft is in fact the fastest growing crime in the United States today. The Federal Trade Commission reported that the number of identity theft occurrences exceeded over 9 million last year. Looking at it from more of a micro point of view, it is estimated that roughly 19 consumers will fall victim to this crime every minute. On the average, it is approximated that it will take the average casualty 500 dollars and upwards of 30 hours to straighten out each individual account where an identity theft has occurred. Unfortunately, research has revealed that it is becoming more and more ordinary for criminals to actually prey on the individuals that they are closest to, an uncle or a grandparent perhaps. The research also revealed that 20% of victims were exploited by a close friend, a neighbor or an in house employee. Usually only about 27% of identity theft happenings actually center around financial or credit card fraud. The more common forms here seem to center more around bank, employment, utility or phone fraud which actually account for roughly 50% of identity theft cases. On a more positive note here, it has been proven time and time again that if the criminal act of identity theft is caught in the early stages, the likelihood of any real significant financial damage becomes a lot less. Lastly, and on another positive note, lending agencies and financial institutions like banks, credit unions or creditors, will normally only hold the member accountable to pay back the initial 50 dollars of the criminal charges.
Make a few sacrifices, and you will find the extra dollars needed to increase your debt repayments dramatically. Those increased payments will save you hundreds, if not thousands, in interest payments. Plus, you will get out of the hole you've dug for yourself much more quickly. Is it fun? No. But it sure beats living a hand-to-mouth existence, fearing bills each month.
2. Snowball your debt payments Take a long, hard look at all your credit cards. Pay particular attention to the one with the lowest interest rate. Have you reached the maximum limit on that card? If not, consider transferring a higher-interest bill to that one. Many credit cards for bad credit even permit this, and it's positively Foolish to trade an 18% debt for one at 12%.
If your entire balance is too large to fit on one low-interest card, pay at least the minimum amounts due on all of your cards except one. Funnel the majority of your debt repayments into that one credit card, and pay it off as quickly as possible. When the balance on that card reaches zero, move on to the next with the same aggressive repayment plan. Lather, rinse, and repeat. This method of repayment is aptly called "snowballing." As your debts decrease, the amount of money you have to attack them increases. Your payments snowball until all of your debt is pummeled. Pretty neat, eh?
Another way to transfer higher-interest debt to a lower-interest card is to take advantage of the promotional offers many banks use to entice you to their line of credit. You've seen the come-ons. "Transfer all your credit card balances to us, and pay just 5.9% until next January." It could be worth it. Moving to 5.9% from 18% interest could mean substantial dollars to you. And the money saved in interest could then be applied toward the principal each month, thus reducing your outstanding debt balance even further.
Take care, though, before you act. Examine the offer closely. Look for the hooks. Will the interest rate after the introductory period be higher than you're paying now? If so, you may have to switch again at that time. That, in turn, could give rise to another surprise. Banks have caught onto the charge card hoppers who switch from card to card to take advantage of the low introductory rates. Many of these offers now stipulate that if you transfer balances from the new card within a 12-month period, the normal interest rate will be applied to all outstanding balances retroactively. That proviso could be a bitter pill to swallow for someone short on cash, and it certainly doesn't help the debt repayment schedule. Read the fine print, Fool. Cash out your savings account You could cash out your savings and investments and use the proceeds toward debt repayment. Yeah, no one wants to do that. But sometimes it's just Foolish to do so. Even when debt interest is at 12%, your investments would have to pay more than 18% before federal and state taxes to equal that outflow of dollars. We doubt the dollars in your savings account are earning anywhere near that rate of interest. Pay off the debt, and it's the same as getting that 18% return without any risk on your part. The higher the interest rate on your debt, the more attractive repayment versus investment becomes. Borrow against your life insurance Do you have life insurance with a cash value? If so, borrow against the policy. Yes, you're borrowing your own money. But the interest rate is typically well below commercial rates, and you can take your time repaying the loan. Do repay it, though. If you die before it's repaid, the outstanding balance plus interest will be deducted from the face value of the policy payable to the beneficiary. While that seems a small price to pay to get out of debt now, it could be burdensome to your loved ones should you sleep the eternal sleep before paying it back.
1. Pay more than the minimum First, break the habit of paying only the minimum required each month. Paying the minimum -- usually 2% to 3% of the outstanding balance -- only prolongs the agony. Besides, it's precisely what the banks want you to do. The longer you take to repay the charges, the more interest they make, and the less cash you have in your pocket. Don't play their selfish game.
Like previously mentioned, identity theft is in fact the fastest growing crime in the United States today. The Federal Trade Commission reported that the number of identity theft occurrences exceeded over 9 million last year. Looking at it from more of a micro point of view, it is estimated that roughly 19 consumers will fall victim to this crime every minute. On the average, it is approximated that it will take the average casualty 500 dollars and upwards of 30 hours to straighten out each individual account where an identity theft has occurred. Unfortunately, research has revealed that it is becoming more and more ordinary for criminals to actually prey on the individuals that they are closest to, an uncle or a grandparent perhaps. The research also revealed that 20% of victims were exploited by a close friend, a neighbor or an in house employee. Usually only about 27% of identity theft happenings actually center around financial or credit card fraud. The more common forms here seem to center more around bank, employment, utility or phone fraud which actually account for roughly 50% of identity theft cases. On a more positive note here, it has been proven time and time again that if the criminal act of identity theft is caught in the early stages, the likelihood of any real significant financial damage becomes a lot less. Lastly, and on another positive note, lending agencies and financial institutions like banks, credit unions or creditors, will normally only hold the member accountable to pay back the initial 50 dollars of the criminal charges.
Make a few sacrifices, and you will find the extra dollars needed to increase your debt repayments dramatically. Those increased payments will save you hundreds, if not thousands, in interest payments. Plus, you will get out of the hole you've dug for yourself much more quickly. Is it fun? No. But it sure beats living a hand-to-mouth existence, fearing bills each month.
2. Snowball your debt payments Take a long, hard look at all your credit cards. Pay particular attention to the one with the lowest interest rate. Have you reached the maximum limit on that card? If not, consider transferring a higher-interest bill to that one. Many credit cards for bad credit even permit this, and it's positively Foolish to trade an 18% debt for one at 12%.
If your entire balance is too large to fit on one low-interest card, pay at least the minimum amounts due on all of your cards except one. Funnel the majority of your debt repayments into that one credit card, and pay it off as quickly as possible. When the balance on that card reaches zero, move on to the next with the same aggressive repayment plan. Lather, rinse, and repeat. This method of repayment is aptly called "snowballing." As your debts decrease, the amount of money you have to attack them increases. Your payments snowball until all of your debt is pummeled. Pretty neat, eh?
Another way to transfer higher-interest debt to a lower-interest card is to take advantage of the promotional offers many banks use to entice you to their line of credit. You've seen the come-ons. "Transfer all your credit card balances to us, and pay just 5.9% until next January." It could be worth it. Moving to 5.9% from 18% interest could mean substantial dollars to you. And the money saved in interest could then be applied toward the principal each month, thus reducing your outstanding debt balance even further.
Take care, though, before you act. Examine the offer closely. Look for the hooks. Will the interest rate after the introductory period be higher than you're paying now? If so, you may have to switch again at that time. That, in turn, could give rise to another surprise. Banks have caught onto the charge card hoppers who switch from card to card to take advantage of the low introductory rates. Many of these offers now stipulate that if you transfer balances from the new card within a 12-month period, the normal interest rate will be applied to all outstanding balances retroactively. That proviso could be a bitter pill to swallow for someone short on cash, and it certainly doesn't help the debt repayment schedule. Read the fine print, Fool. Cash out your savings account You could cash out your savings and investments and use the proceeds toward debt repayment. Yeah, no one wants to do that. But sometimes it's just Foolish to do so. Even when debt interest is at 12%, your investments would have to pay more than 18% before federal and state taxes to equal that outflow of dollars. We doubt the dollars in your savings account are earning anywhere near that rate of interest. Pay off the debt, and it's the same as getting that 18% return without any risk on your part. The higher the interest rate on your debt, the more attractive repayment versus investment becomes. Borrow against your life insurance Do you have life insurance with a cash value? If so, borrow against the policy. Yes, you're borrowing your own money. But the interest rate is typically well below commercial rates, and you can take your time repaying the loan. Do repay it, though. If you die before it's repaid, the outstanding balance plus interest will be deducted from the face value of the policy payable to the beneficiary. While that seems a small price to pay to get out of debt now, it could be burdensome to your loved ones should you sleep the eternal sleep before paying it back.
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