If there’s one topic that we see and hear a lot about here it is debt. Most of the questions that we get are along the lines of how to get out of debt quickly and how to avoid creating debt. Today we’ve put together a blog filled with information about how to lower your debt and pay it off as fast as possible. With bankruptcies, underwater loans and student loans spiraling out of control we thought it was a good subject. Enjoy.
Statistically nearly 70% of adults carry some type of debt. Surprisingly that’s down from about 75% from 10 years ago but it’s not actually good news. The reason is that people today are carrying much more debt than ever before. For example;
- The average debt per household is $70,000 today.
- On average, most people have about $15,000 worth of credit card debt.
- The average homeowner has a mortgage debt of approximately $150,000.
- If you’re a student your average student loan debt is around $33,000
- Over 1 million individual consumers filed for bankruptcy in 2012.
The simple fact is that most people carry more debt than they can handle. The types of debt (or as we like to call it, financial distress) are varied but if you look closely you will find that there are many common threads.
- Medical expenses are a growing cause for financial distress and one of the leading causes of personal bankruptcy.
- With no guarantee of a job after graduation, student loans can pile up quickly and cause big financial problems.
- Credit card companies are certainly part of the problem with spiraling credit card debt but, let’s be honest, those little plastic cards don’t use themselves. Many a financially inexperienced consumer has found that controlling their credit card spending is not as simple or easy as they thought it would be.
When it comes right down to it, if you’re feeling stressed that you won’t be able to pay your bills then you have arrived at a debt level that is higher than you can afford. Whether you make $35,000 a year or $350,000 a year you can reach this point if you’re not careful and you don’t plan well financially. Many people who seem to ‘have it all’ are actually up to their eyeballs in debt and the stress that it causes.
Now that we’ve surely make you feel much worse we’re going to give you some information that will help you to conquer your debt. (Sorry, you just have to take that bad with the good sometimes.) If you’re in over your head and you’re quickly losing control of your financial situation there are a few things that you can start doing today that are simple and straightforward and will help right away.
The very first would be to completely stop charging anything on your credit cards. If this proves too difficult than physically take your credit cards and cut them into pieces with a scissors so that you can’t use them. If you have the willpower then just put them in a safe place in your home rather than cutting them up. Some people go to extremes to hold onto their credit cards but not use them, including freezing them in a Ziploc bag full of water. The reason for this is just to put a ‘time barrier’ between the time they want to use the card and the time that they physically can use it, sometimes enough to help them change their mind.
If you’re having trouble paying your bills and you fear that you might start falling behind you should call each of your credit card companies and request that they lower your interest rates. If you been diligently paying your bills on time and don’t have a history of late payments they should be willing to work with you. If they aren’t, give them a call again in a few months and try again. Shifting the balance of your credit card amounts around to cards that have lower interest rates is a good idea as well as long as there aren’t high transfer fees.
Go on a financial diet right now. If you’re not using a budget then you definitely shouldbe as it will show you where you are spending the most and help you to cut back on wasteful purchases. (See 1 of our many budget blocks for help.) One quick solution is to give yourself a weekly cash allowance and don’t use anything over that amount, no matter what. Also, figure out how much you can afford to pay towards your debt once housing, food and other essentials are paid for and start using all of that money to pay down your debt.
When paying your bills, a good idea is to pay the minimum on all of your credit cards except the one with the most debt or the highest interest rate. With this one you should pay as much as you can every month until it is paid off and then start with the next highest. Each time you pay off one card you should apply the money that you are spending to pay off my card plus all previous cards to pay off the next.
Here are several other tips that you can use to help pay off your debt.
- Avoid using your credit cards if you can’t pay off the complete amount every month.
- Keep at least six months’ worth of money to pay living expenses in some type of emergency fund that you don’t touch.
- Purchase health insurance but take a high deductible with a high payout. This will not make a huge dent in your monthly bills but, if a medical emergency arises, could save your bacon financially.
- Don’t try to figure out everything on your own. If you need professional help, go to a professional financial advisor.
Of course, once you have paid off your debt you’ll want to avoid getting back into debt. That sounds a bit obvious but you’d be surprised how many people get out of debt just to find themselves back in debt within a few months or years. Frankly, if you’re going to work your tail off to pay off your debt there’s no sense plunging back into it anytime soon. We hope that some of the advice and tips we gave today have been helpful and we invite you to come back to visit with us again sometime soon. Best of luck and remember, credit cards don’t spend themselves. See you soon.