Five Credit Card Debt Solutions

Nothing puts more stress on American families than being in debt to the point that they are struggling monthly to make ends meet. Recent American Banking Association statistics show that the average family in the US is carrying approximately $8,000 in credit card debt. Additionally, when you consider the pitfalls of having credit cards and using them, there really is no way to responsibly handle and use them. Naturally, the biggest disadvantage to having credit cards is that they are so easy to use and run up their balances.

If you have found yourself in a situation where your credit card debt is getting to the point that it is overwhelming and stressing you and your family out, here are 5 credit card debt solutions to consider if this is the case.

Start paying with cash – we call this step “going green”. Just remember that if you have high interest credit cards with large balances, making the minimum monthly payment accomplishes nothing. Stop using those credit cards and start paying cash for everything. In fact, and we know this is difficult, we recommend that you just cut them up and forget about having more than one or two at the very most to be used for emergencies only.

Think about robbing your piggy bank – if you have a savings account, you should consider what you can afford to take out and apply to your credit card debt. Despite the fact that the economy is unstable and there is ongoing market volatility, stop thinking about hanging on to your money because of job insecurity. Instead, consider the fact that if you are only earning a few percent interest on your savings account yet paying 15% to 20% on your credit cards, you’re throwing away your hard earned money.

Consider a second job – again, this may be a hard pill to swallow, but you may have no other choice if you want to avoid filing bankruptcy. If there is less money coming in each month than what is going out, your debt is only going to keep compounding. Find a way to increase that monthly income so that you can apply more to your debt.

Look into a payment protection plan – should you be concerned about losing your job or if you know this is an eventuality, then you should contact all of your creditors to see if they have a payment protection plan. Paying a few extra dollars a month now will ensure that your payments will be made for a while when you are out of work and looking for another one. It will help to protect your credit rating, but most payment protection plans do have a time limit to be aware of.

Try consolidating your credit cards – you can lower your overall debt by using a single low interest credit card to start paying off the higher interest ones. Either look for a lower interest credit card or inquire with one of your current creditors to see if they offer a balance transfer option.

Five Credit Card Debt Solutions

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Does Debt Settlement Work?

Debt settlement is a process in which you negotiate with creditors in order to pay less for your debts, eventually discharging them (paying them off). This typically happens with credit cards but is not exclusive to those types of debts. Usually, the creditor will require that you pay the settlement in one of two ways, either as a lump sum payment or paid off over a short period of time – less than a year in most cases.

The bottom line with debt settlement is that it is a way in which a person can relieve some of their debt load. In the past, unless the creditor had declared bankruptcy, credit cards rarely settled on a debt like this. But times have really changed. Credit card companies have changed their mentality and now reason that getting something is better than not getting anything at all.

Advantages and disadvantages

The obvious advantage of debt settlement is that you can drastically reduce the amount you owe, sometimes by as much as 70%. This enables you to get the debt paid off and avoid declaring bankruptcy. Debt settlement plans also enable you to create realistic goals when breaking down your plan. This enables you to stay motivated towards paying your debts off in a timely manner.

There are some disadvantages with debt settlement that you need to be aware of. First and foremost, once a settlement has been reached, you may have to make a lump sum payment shortly after the agreement has been made. If you don’t have the funds available to do this then debt settlement is not the right option for you. Occasionally, your creditors will let you pay the debt off in increments over a short period of time (see above), but usually once they settle, they want the entire amount quickly.

Another disadvantage is that the payment of the debt may be reported to your credit report as “paid/settled”, which is a negative because it tells other creditors that you didn’t really pay the debt in full. Until this particular debt is completely removed from your credit file, it will remain as a negative mark on your credit report which will affect the attitudes of future creditors should you apply for credit again.

Is debt settlement worth pursuing?

If your debts have gotten so overwhelming that you may be considering bankruptcy, debt settlement may be a way in which you can get out from under this by reducing the amount that you currently owe. If your credit has already been ruined or if you aren’t concerned about it getting ruined, and you have some money stashed away, debt settlement is a good option for you to pursue.

In order to start the process, contact your creditors and see if there is any way for them to reduce the amount owed if you can come up with the full payment in quick fashion. You can wait for them to call you, which they will do once you are late on a payment, so this is up to you.

Does Debt Settlement Work?

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How to Pay Off Debt Fast: Paying Off Tax Debt

The last in our series on how to pay off debt fast, we want to talk about a problem that not many of us have but if you have it you know you can find yourself in a world of trouble as a result. I’m speaking of course about outstanding tax debt.

Having tax debt can be a very stressful and worrisome problem. As a result, most people who have tax debt want to find a way to pay it off as quickly as possible. Some people end up with a large tax debt because of not paying their taxes when they should have, while others may actually even have tax debt that resulted from incorrectly calculated taxes. Whatever the reason, when faced with tax debt, you have to decide whether to try to handle the problem yourself, or get help from a tax professional.

If you feel you may have tax debt that has resulted from incorrectly calculated taxes, working with a tax professional is often the best choice. Ask for references from coworkers or friends to make sure you find the best tax professional possible. Make sure you have all of your original tax returns for the period in question, and organize your paperwork as much as you can. This will help save money, because tax professionals will generally charge you for each hour of their time. If you do as much of the organizational work as possible, you will not be paying for as many hours of their time. You can also find out what parts of the paperwork you can do on your own, to further save money.

If you plan to handle the resolution of tax debt on your own, you will want to make sure to get all your records organized. Once you know exactly what is owed, calling the IRS will allow you to find out what arrangements can be made to allow you to pay your tax debt. One of the easiest methods is setting up an installment agreement with the IRS, allowing you to make monthly payments towards your owed taxes. There are various types of these plans available, so make sure you understand your options completely before making any decisions so that you don’t agree to a plan that you eventually won’t be able to live with.

There are also partial payment installment agreements available through the IRS. If you are considering this method, working with a tax professional with experience in these types of agreements is the best choice. All of your tax returns must be filed, and you must be current on estimated tax payments or income tax withholding before the IRS will approve such a plan. Once all the paperwork has been filed, requesting a partial payment installment agreement, it will have to be approved by the IRS.

If your tax debt is so great that the IRS may doubt it could be collected from you, or if there is question as to whether you are actually liable for the tax debt, you might qualify for an offer in compromise. This means that the IRS might choose to accept less than the full amount of the taxes you owe as payment. There are contractual terms involved with these agreements, and the IRS is not required to approve your offer, but it can be worth a try.

How to Pay Off Debt Fast: Paying Off Tax Debt © SpareDollars.com

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How to Pay Off Debt Fast: Paying Off Mortgage Debt

The next in our series on how to pay off debt fast is one most of us know all too well: the dreaded mortgage payment. Paying off debt is important in order to save money and avoid paying large sums in interest. By paying off mortgage debt, most people can save considerable amounts of money over what they would pay over the full term of the mortgage loan. Using a mortgage calculator that lets you adjust the interest rate over different pay back periods is a great way to get an overall picture of how much you will ultimately pay at the end of the mortgage period. This may be a big eye opener and an impotence to find a way to pay back your mortgage as quickly as possible. However, before embarking on a plan to pay mortgage debt off early, it is important to determine if this is the best debt to be concentrating on. Those who also have high interest credit card debt or other types of high interest loans should generally focus on paying those off first. As a rule, you should also not neglect your retirement savings plan in order to concentrate on paying off mortgage debt early.

After considering those issues, many people determine that they in fact are able to afford the extra money monthly that it would take in order to pay a mortgage off early. Once the decision is made, there are some guidelines and methods to keep in mind and to help you reach your goal.

One of the easiest ways to pay off mortgage debt is to make monthly principle payments. These payments will go directly towards the principle of your mortgage debt, allowing you to lower the amount owed on your mortgage much more quickly than if you just made the regular monthly payments. Adding just a little extra each month towards the principle can reduce the mortgage loan amount faster than you would think. Of course, before you start making principle payments, make sure that the lender allows these types of payments to be made without there being penalties involved.

If you cannot afford to pay any extra money towards your mortgage on a monthly basis, try to plan to make one extra principle payment each year. This can be especially easy if you plan this around tax refund time, or if you get a yearly bonus at work. Applying this extra money on a once-a-year basis can help you pay your mortgage off quicker. In fact, many people manage to pay mortgages off early simply by paying towards their principle whenever they receive a chunk of unexpected money. You might also want to investigate going on a bi-weekly payment plan if your lender offers one, as this equates to 26 payments each year instead of only 24.

If you absolutely do not have any extra income to put towards your mortgage, consider taking a part-time job, at least on a temporary basis, and earmark your entire part-time earnings towards paying off your mortgage. This can be a quick way of paying down a mortgage fast, without denting your existing budget.

How to Pay Off Debt Fast: Paying Off Mortgage Debt © SpareDollars.com

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How to Pay Off Debt Fast Series: Paying Off Student Loan Debt

Next up in our series on how to pay off debt fast is something that most of us who went to college are saddled with: student loan debt. Most college students end up with at least one student loan that needs to be repaid after graduation. However, it can take a little bit of planning in order to figure out the best way to pay off student loan debt as quickly and easily as possible, especially if you are not making a lot of money right after graduation.

The first step to paying off student loans is figuring out exactly what types of loans you have, and how much you owe on each of them. Many students do not actually know the details of the various types of financial aid they received while in school, and only start to realize exactly what needs to be repaid after they graduate and the loans start to become due. Start by making a list of every loan, the amount due, and any other details you know about the loan. If you do not have a list, contact the financial aid office of your school, as they should be able to help you or put you in contact with somebody who can. Of course, you do not need to list any money you received because of a grant, as those do not need to be repaid.

There are generally several repayment options available for student loan repayment. Standard payment plans often offer the best interest rates, but because this is the quickest repayment method, monthly payments are also higher. If you can manage the monthly payments, this is a good option since you will pay the loan off relatively quickly and you will ultimately pay less since the interest will be lower. Graduated payment plans will increase the amounts of the monthly payments over time, with the expectation that your income will also continue to increase as you gain work experience. This is one of the most common repayment plans. Income-based payments are good for those who work in seasonal or commission-based jobs. Long-term payment plans offer the lowest monthly payments, but also the highest interest rate, and can be quite costly over the long term. If the later works for you in the short term, look into the option of switching plans if your income increases and you want to pay off your loan more quickly down the line.

If you have more than one student loan, you could also choose to consolidate them. While this can lower your monthly payments, you will end up paying more in interest by the time you pay your entire loan amount off. One thing to remember when consolidating student loans is that federal and private loans cannot be combined when consolidating. Although the main benefit of consolidating federal loans is to create one monthly payment, many students find advantages in consolidating private loans. Before consolidating, make sure you check with the lender concerning origination fees, prepayment penalties, interest rates, and any other terms of the loan consolidation. Do not sign any paperwork until you understand all the terms completely, and avoid consolidation loans, which include prepayment penalties, as this will prohibit you from paying your loan off early without being penalized.

How to Pay Off Debt Fast: Paying Off Student Loan Debt © 2010 SpareDollars.com

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How to Pay Off Debt Fast: Paying Off Credit Card Debt

First up in our series on how to pay off debt fast is the most infamous debt culprit for almost all of us: credit card debt. Most people who have a credit card carry a balance on the card, which means that in addition to paying off the money owed, interest on the balance is also owed. Due to the fact that credit card interest rates can be high, it can sometimes be difficult for people to be able to pay off credit card debt. However, there are some methods you can use to pay off your credit card balance and get out of debt.

The first step, especially if you have multiple credit cards, is to make a list of all your cards and what the balance is on each card. You will also want to write down the interest rate and the minimum amount that is due each month on the card. Once you have this list together, sort them so that the card with the highest interest rate is at the top of the list. Then, add up the minimum monthly payment amounts to find out what you need to pay each month just to stay current on the bills.

With this information, determine if you can possibly transfer the balance from any cards with a high interest rate to a lower-interest card. This small tip can actually save you a great deal of money. You should also call the companies and ask if you can get a better interest rate. This is not always possible, but it does not hurt to ask. If you are successful in transferring card balances or in getting lower rates, adjust your list accordingly.

With this list, you know the minimum amount you need each month. Figure out how much money you can afford to pay monthly, above this total minimum amount, in order to pay off your credit card debt. Once you have this figure, each month pay the minimum amount on all the credit card bills except the one at the top of the list with the highest interest rate. On this card, pay the minimum payment plus the extra amount you determined that you could afford each month. Once the card with the highest balance is paid off, repeat the process with the card with the second highest interest rate, until all your credit cards are paid off. During this pay back period it is advisable to use your credit cards for as few new payments as possible. This will make it easier to reach your final goal of completely paying back all your debt.

If you have several high interest credit cards, you might benefit from finding other sources of money that you can tap so that you can pay off these cards even faster, thus saving money. If you have money in a savings account that pays low dividends, using it to pay off high interest credit card debt can be wise. If you have a home, consider taking out a home equity loan to pay down your credit card debt, as home equity loans are tax deductible and have a lower interest rate than most credit cards.

How to Pay Off Debt Fast: Paying Off Credit Card Debt © SpareDollars.com

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