Tip No. 4: Consider, but don’t abuse balance transfers
Another DIY method for getting out of credit card debt is using balance transfer credit cards. They involve moving high-interest balances from one or more credit cards to a new card with a lower introductory APR, often 0%.This can provide a temporary window to pay down your debt without accruing further interest. The length of the introductory period varies based on your credit score, usually from 6-18 months. Note that you usually need good to excellent credit to get these cards with a favorable interest rate. If your credit is bad, this may not be a suitable plan for you.
It’s important to use balance transfers strategically. There are usually balance transfer fees and you need to be sure you have a solid plan to pay off the transferred balance before the introductory period ends, as interest rates will typically jump significantly afterward. So, calculate carefully to transfer an amount of debt you can reasonably expect to pay off before the introductory period ends.
If you do a balance transfer for only a portion of your debt, make this card the first one that you focus on eliminating. It will save you money since the payments are completely interest-free.
Tip No. 5: Cut back on discretionary expenses
Debt reduction and balance transfer payoffs are more effective with more cash. So, the more you can cut back on other expenses, the more cash flow you have to get out of debt. Creating a budget is a great way to track and find places to cut back. Here are a places you can try to cut back:
- Review your streaming services: Explore whether you can cancel, consolidate or temporarily pause some entertainment subscriptions.
- Evaluate your services: Consider if there are tasks you can handle yourself, such as landscaping or cleaning, to free up some funds.
- Embrace home-cooked meals: Reducing dining out and bringing lunch to work can make a noticeable difference.
- Explore at-home fitness: Consider home workouts as an alternative to a gym membership.
Remember, every little bit helps in reaching your financial goals faster. However, don’t do the financial equivalent of a crash diet; it can lead to spending splurges. Always aim to make a plan that you can maintain.
Tip No. 6: Don’t neglect your savings
One thing that you shouldn’t cut out to eliminate debt is savings. Unexpected expenses, like car repairs or medical bills, can derail your progress and potentially push you further into debt if you don’t have a safety net. Aim to strike a balance. Ideally, you want to save about 5-10% of your take-home income per month. If that isn’t doable, even smaller, yet consistent contributions to an emergency savings account can make a difference. Otherwise, living paycheck-to-paycheck puts you one emergency or unexpected expense away from more debt.
You shouldn’t have to spend every penny to get out of debt effectively; if you have to, it means you need another solution.
Tip No. 7: Increase payments as you free up cash flow
Each time you eliminate a credit card debt, you eliminate that bill. That gives you more cash to pay off the next debt. Although you can use the freed-up cash to reinstate discretionary expenses or relax your need to budget, it’s better to roll it into paying off your debts.
Stay committed to repaying your debts and knocking out your balances.
Tip No. 8: Look into debt consolidation loan repayment
Beyond balance transfers, a debt consolidation loan offers another way to simplify your finances and potentially lower your interest rates. This involves taking out a low-interest personal loan to pay off your existing credit card balances, or other unsecured debts, leaving only the loan to repay.
Like balance transfer cards, this method really only works for those with good to excellent credit because that’s who can qualify for the low interest rates. Still, it’s worth going online and comparing loan interest rates, fees, and comparing the estimated cost to other options. Always compare the time to pay off the loan and the total cost (including interest charges and fees). This takes some calculation, but it’s essential to get the most cost-efficient and timely repayment plan possible.
Tip No. 9: Stop charging until you pay back what you owe
The last thing you need is more debt to repay while you’re in the process of paying it off. That means that you must commit to stop charging while you focus on managing debt. You don’t have to swear off credit cards forever, but you at least need to get back to zero first. It’s the only way to get back to the point where you can use credit interest-free.
Even if you use balance transfers or consolidation loans, resist the urge to charge until you pay the debt off. Otherwise, you run the risk of running up new balances and making your debt problem worse instead of better. Your goal was to reach zero so you can regain stability, not to fall back even further into debt.
Tip No. 10: Deal with the service provider for medical bills
Besides credit card debt, you may have unpaid medical bills to repay, too. Thanks the a new ruling from the Consumer Financial Protection Bureau (CFPB), medical debts in collections will no longer be included on credit reports. This means they won’t affect your credit score. However, you shouldn’t ignore these debts. There may still be consequences for not paying them such as legal action and liens. So, you need to incorporate medical debt repayment into any plan to manage debt.
