If it seems like you’re drowning in credit card debt and
you’ll never get out, don’t despair. Here are 9 ways that you can get
rid of your debt, even if you think you don’t have any extra money.
Pay More Than the Minimum
Have you looked
at the actual amount of your minimum payment that goes towards paying down the
debt? My husband has a credit card with $1500 on it. If we paid the monthly
minimum we would only be paying $7 towards the actual debt, the rest is
interest that goes directly to the credit card company for the privilege of
carrying their card. It would take my husband over 17 years to pay off the card
just paying the minimum payment each month. If he pays just $50 more a month it
will take him just over 2 years. See the difference?
Move to a Lower Interest Card
This is a no
brainer. Why pay 18% a year when you can pay 9%. You should ask you credit card
issuer to lower your rate each year, especially if you pay your bill on time
each month. If they refuse, let them know you are shopping around for a better
rate. Once they know you may be leaving them they’ll likely lower the
rates.
Cash out Your Savings
Rather than paying
18% or more a year on your credit card debt, use your savings to pay off the
bill. Even if your savings is earning you the stock market average of 11%,
you’re still paying out more than you’re earning. Paying off the debt
is like earning 18% risk free.
Borrow From Your Life Insurance
You can
borrow the cash value of your life insurance policy. The only risk with this is
making sure you repay the loan before you die. Otherwise the amount owed will
be taken from the face value, leaving your family with less than they may need.
Home Equity Loan
Using the equity in your
home to pay off your debt can do a double win. Your debt will be paid off, and
you may be able to deduct the interest from the loan on your income taxes.
Don’t fall into the trap that many people do though – don’t run
up the credit cards again, leaving yourself with the equity loan bill and more
credit card bills.
Borrow Against Your 401k
Borrowing against
your 401k is interesting. The interest you pay goes into your account, so you
are actually paying yourself more money. However, the loan must be paid back
within 5 years, and if you leave your company before then the loan will become
due at once. If you don’t repay it at this time the amount due will be
taxed as a withdrawal, and if you are under 59 ½ you will pay an extra
10%. Plus the money that you pay back into your 401k is already taxed, and will
be taxed again when you withdraw it at retirement.
Renegotiate Terms With Your Creditors
If
you are about to be behind on your bills, or already are, renegotiating the
terms of the debt can be very helpful. Your creditors want you to pay, so if
they know you may not be able to unless they change the terms, they will be
willing to listen. In other words, threaten them with bankruptcy.
Borrow From Your Family or Friends
This is
a last resort for me. Your family and friends love you and will want to help.
Just be sure that you can repay them.
Bankruptcy
This is the very last resort. If
you really can’t afford to pay your bills, you have no savings, 401k,
family, and are not expecting to get a better job or win the lottery in the
near future, file for bankruptcy. It will stay on your credit report for up to
10 years, but can also be the fresh start you need.
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