Get out of debt today
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Being in debt is like living under a huge weight. You can't seem to get out from under it no matter what you do and it gets in the way of everything you want to do. If you are in debt the best thing you can do is get out of it as quickly as you can. It might hurt in the short term, but over the longer term the pain will be more than worth it. Getting out of debt will increase your options and give you much more choice about what you can do and what you can borrow. It is also much less stressful to have no debt. Here are a few ways that can help you get out of debt.
Have a plan. You don't have to be a highly paid accountant to sit down and make a debt payment plan. You don't even have to come up with a detailed plan which covers every precise detail of getting out of debt. Take a few minutes, sit down, look at the debt you have and come up with a basic plan for paying it down. By thinking about the plan and writing it down you have made it real and you have greatly increased your chances of success.
Don't just pay the minimum payment. Credit cards are where most people are carrying a lot of their debt. Credit card companies are quite happy if you only pay the minimum payment. That means that you will be paying them longer and they will be getting more interest. The best way that you can get your debt under control quickly is to increase the payments you make every month. The more you pay, the quicker your balance will go down and the less interest you will have to pay. Working hard to find ways to save money so that you can spend more on credit card payments will be tough, but it is definitely worth the effort. Look at your spending habits and find ways to do this. The sacrifices will be more than worth it.
Trade balances between cards. If you have two or more credit cards which are both under their credit limit and one has 20% interest and the other has 14% interest, it makes sense to transfer as much as you can from the higher rate card to the lower rate card. A six percent difference in interest rate on a few thousand dollars can make a huge difference over the course of a year. Manage your balances to limit the interest that you will have to pay. As you pay off the lower interest rate card, look at transferring more balance to that card. Keep doing this until the debt is under control. These moves can save you a lot of money.
Spend your savings. If you have a large savings account built up you have probably worked very hard to get it. That's great, but having the money sitting there might not be the best solution. A savings account is collecting little or no interest. An outstanding credit card balance is being charged a high interest rate. Cash out your savings account to pay down other debt, like credit cards. It might hurt in the short term, but over the long term your savings will actually grow faster, because you won't be wasting money paying high interest rates. That money you would spend on interest is money you can now save. Like so much with paying down debt, some pain now will help you dramatically in the future.
Have life insurance? Borrow against it. If you have a policy that you have held for a while, you have a good deal of equity built up. Your life insurance company will let you borrow that money while maintaining your policy. Sure, you are just paying interest on money that is already yours, but the interest rate will be lower than you are paying on your credit cards. Borrow the money, pay off your high interest loans, then aggressively pay back the loan from your insurance policy. You will save a lot of money in interest in the long run.
Mobilize your home equity. If you own a home and you have owned it for a while, chances are that you have some equity built up. In a good real estate market, you will have even more equity, because the value of your home will have grown. Home equity homes are very readily available. Borrow against your home equity, pay off higher interest loans and then pay back your home equity. As an added bonus, home equity loans are often tax deductible, meaning that the interest rate is lower than it appears. The thing you have to avoid here, as in all the other situations, is the temptation to start using your credit cards to build up debt again once you have paid them off.
Borrow from family or friends. Sure, being in debt to your family or friends is not the best situation to be in. It can be uncomfortable. It may very well be better than being in debt to credit card companies, though. Family or friends who are in the position to help may give you a loan with a reasonable interest rate. This will allow you to pay off your high interest debt. Without the high interest, you will be able to pay back the loan quickly and solve our financial problems faster. It might also be a good incentive for you to get out of debt, because you won't likely want to owe someone close to you money for longer than you possibly have to. Just make sure to get it in writing so that problems are avoided.
Hit up your 401(k). If you have a 401(k) retirement plan at work and you have had it for a while, you probably have a good deal of money built up in it. You might want to borrow money from you plan. As part of most plans, you are allowed to borrow up to 50% of the total in the plan up to $50,000 dollars. Interest rates will be lower than your credit cards, so this is a great way to lower your interest rates and pay off your debt more quickly. The other huge benefit of this approach is that since you are borrowing from yourself you pay back the interest to yourself. You still have to pay it back, but this still makes it more attractive.
Renegotiate terms. Call up your lenders and ask them to lower your interest rates. If you have a history with the company and have made your payments on time they will probably do it. They want to keep your business, so they will lower your rates instead of losing you. It might not always work, but it is definitely worth a try.
Posted by jonathan on December 20, 2005 at 09:57 PM