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How To Pay Off Credit Card Debt Faster
The post How To Pay Off Credit Card Debt Faster appeared first on Penny Pinchin' Mom.
According to NerdWallet, the average credit card debt for the American Family is nearly $16,000. Â That is a considerable amount, and the monthly financial burdens can quickly become overwhelming
You may feel as if there is no light at the end of the tunnel as you see no end in site. How in the world did I let this happen and what can I do about it now?
You certainly do not want to be like me and go down the path of bankruptcy. Don’t do that.
Instead, you simply need to know where to turn for in order to get the help you need to pay off your credit card debt as quickly as possible.
The truth is that you may not even realize how much debt you have or where to begin. Let’s tackle your debt by helping you figure out the simplest way to get rid of your credit card debt as fast as possible.
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HOW TO QUICKLY PAY OFF CREDIT CARDS
The first thing you have to do is take responsibility for it.  Whether your debt is a result of severe financial times or frivolous spending, it doesn’t matter. But, before you even think about getting out from beneath your credit card debt, you need to be ready to make it happen. That means you have to be willing to put in the hard work and make the lifestyle changes necessary to achieve your goals.
Once you do that, you are ready to take steps to pay it off.
1. Transfer your balances to zero or lower balance cards
When you have a lot of credit card debt, you will want to try to lower the amount of interest you pay. Since that compounds every month, it can mean your $50 payment will only reduce the debt by $10.
Take some time to do some research to find zero interest rate transfer cards or those with a low introductory rate. Â If you can drop your interest payments, that will allow you to focus on paying off your credit card debts.
By consolidating your credit card debt onto one or two cards, you may find you save a significant amount of money in interest while working to pay off the balances.
2. Use your house
When mortgage rates are low, it might make sense to refinance your home. Doing so may allow you take out a loan large enough to cover the balance you owe on your home plus your total credit card debt, without increasing your monthly payment.
If you can borrow more money, you can use that additional amount to pay off your credit card debt. Then, all of your debt will be in one monthly payment – your mortgage.
Or, if you would rather not refinance, consider taking out a home equity loan. Use what you’ve paid towards your home to pay off your credit cards. The interest rate is often lower what your credit card company charges.
3. Use a personal loan to pay off credit card debt
If you do not own a home, talk to your bank about a personal loan (secured or unsecured). Just like a home equity loan, you can pay off your balances and have a single monthly payment, often at a lower rate than credit card companies charge.
4. Get rid of your cards
If you are committed to paying off your credit card balances cut them up. That way, you will not be tempted to add more debt to your balance. However, what you should not do is close the account. Keep it open and continue to pay on it to help increase your credit score.
For some people, cutting them is just not an option. If you find this is you, then you need to put your cards on ice. Literally. Put the card in a baggie filled with water and drop it into your freezer.  Now,  you won’t be tempted to dig it out and use it as you would have to put in a LOT of effort to do so.
Do what you have to do to stop spending. There is no way around this. Until you are ready to change your attitude towards spending money, you will not be able to get out of debt. This starts by cutting off the spending. Period.
Read more: Â How to Break the Cycle of Credit Card Debt
5. Know how much you owe
Sadly, most people have no idea how much credit card debt they have accrued. You have to know how much you owe before you can implement a plan to pay it off.
Make a list of the current balances owed, minimum monthly payment and the interest rate. Then add up total the amount of debt you have AND the total minimum monthly payments. Â This gives you a better picture of the amount of debt you currently have outstanding (and, it may not be pretty to look at).
The debt payoff bundle gives you every form you need to track, monitor and pay off your debt once and for all!!
6. Find money
Once you know how much debt you have to pay off, take a second look at your budget. Find places where you can cut back to have more money to pay your debt. That may mean scaling back or eliminating dinner out for a while, so you have another $100 to use towards your credit card balances.
Think about making some short-term sacrifices for long-term gain. You will not need to scale back forever. Once you are out of debt you may even find you don’t miss those items you cut out of the budget!
7. Start paying them down — One at a time
There are two different rules of thinking when it comes to paying off credit card debts.  One says pay the higher interest rate, and the other says the highest balance. You can read more about those below.
No matter which method you decide to use, start with ONE debt and work on it first. Get it paid in full before you try to pay others.
You can use a debt payoff calculator to find out long it will take to pay off your credit cards and know how much you’ll save in interest along the way.
8. Consider debt consolidation
Sometimes, the best way out of debt is to consolidate them all into a single payment. You may find that you ultimately pay less over the life of the loan vs. what you would pay in interest on each card alone.
While credit card transfers are an option (as mentioned above) you may also want to try debt management or a consolidation program. These include counselors who may be able to negotiate (on your behalf) to reduce the rates or payment terms.
Rather than make the individual payments on each debt, you make a single payment each month to the agency. They then transfer the payment to the creditor on your behalf.
If you do not own a home or are unable to qualify for a credit card or personal loan then debt consolidation may be the answer.
HOW DO YOU PAY DOWN YOUR CREDIT CARD BALANCES
If you do not opt for one of the options above and instead want to tackle your balances on your own, there are two methods you can use.
Highest Interest Rate First (Avalanche Method)
The avalanche method of debt repayment starts by first tackling the debt with the highest interest rate. You will want to pay as much as you can towards this debt first, continuing with minimum payments on all other debts.
For example, if the minimum monthly balance is $25, try to double, if not triple, the payment. Combine this amount with any additional income freed up in your budget to pay towards your debt. Your focus should be only on this single debt until it is paid off. Continue making the minimum required payments on your other credit card balances.
Once your first card is paid off, roll the monthly payment you were making on that card onto the next card. So, if you were paying $150 on card one and $30 on card two each month, you will now pay $180 towards the balance of your credit card. Continue to do this until all of you are debt free.
Using this method results in paying less interest, therefore, less overall debt. Â As you tackle the one that accrues interest at a higher rate first, you will eventually pay out less to the company. Â The downside is that you may end up tackling an overall higher balance first, which can result in it taking longer to make progress, and you becoming discouraged.
Lowest Balance First (Snowball Method)
The snowball method does not take interest rate into account, but rather balances. Review your list of debts and find the one that has the lowest balance. This is the one you will focus on first.
You will follow the same rule as you would if you were paying down the higher interest rate card first. Â Find any additional money you can in your budget and add that to the minimum monthly payment of the lowest balance card. Â Continue paying on that card until it is paid in full. Â Once that happens, roll that payment into the next balance. Â Repeat this process until all debts are paid off.
The reason that this works is that it tends to be more encouraging. Â You will see that you are actually making progress as you can achieve a balance paid in full more quickly, which gives you the motivation to proceed. Â The downside of this method is that you may have to pay a bit more in overall debt due to additional interest on the cards.
The thing is that one of these is not “right or wrong.” I hate when I see so-called experts trying to degrade someone for trying one over the other. Â We are all different and we know what will motivate us to help us stay on track. Â Decide which of these two works best for you.
8. Use Windfalls
While you are working yourself out from beneath your mountain of debt, there may be times when extra money finds its way to you. You may get a raise or a bonus at work. This may be the year you qualify for a tax refund. When you get extra money of any amount, do not use it as you want. Instead, apply it towards your debt.
If you want to tackle this as quickly as possible, you may need to sell things you do not need or even get a second job. There are many ways you can make money at home, many of which will not interfere with your regular full-time job.
STAYING OUT OF CREDIT CARD DEBT
Once your credit card debt is paid in full, you never want to allow yourself to get into that situation again. Â Here are things you need to do:
1. Figure out why you got there in the first place
Was the reason you had debt due to poor saving? Are you a spender? Did you just not have a budget and had to use it to cover living expenses?
Whatever the reason, you need to make sure you know what lead you down that path, to begin with, and make changes in your life so that it doesn’t happen again.
2. Have an emergency fund
Many times, people turn to credit cards when they have an unexpected expense. This is where your emergency fund will come into play. Instead of turning to a credit card to bail you out, you will use your emergency fund balance instead.
Read more: Â How to Rapidly Build an Emergency Fund
3. Never charge more than you have in the bank
Far to often, people will charge in advance of a paycheck or other income source they plan on coming their way. Â But, what happens if that fails to come through? Â Can they pay off the balance?
If you can not pay off your balance with the money in your checking or savings account, then do not charge it. Â Just because you are owed money does not mean it will come through.
4. Always pay balances in full every month
It can be tempting not to pay off your card and keep more of the money for yourself. Â However, this will just put you back into the same situation you just got out from. Â Make sure your entire balance is paid off every single month. Â No exceptions.
5. Review the perks
Many people use credit cards because of the perks. These include cash back, free offers or even airline miles. Â However, what do you have to spend to earn the reward? Is it worth racking up a hefty balance just to get something free?
Companies can change their programs at any time. Â You could lose those you’ve earned or no longer be eligible to earn new ones. Â The perks may sound great, but are they really worth it?
Trying to pay off credit card debt is not easy. However, can you continue to live with the financial strain they are causing you? Only you can decide that it is the right time to pay off credit card debt.
The post How To Pay Off Credit Card Debt Faster appeared first on Penny Pinchin' Mom.
Source: pennypinchinmom.com
How to Escape Debt in 2016
The new year is right around the corner and if youâre like most people, youâve probably got a running list of resolutions to achieve and milestones to reach. If getting out of debt ranks near the top, nowâs the time to starting thinking about how youâre going to hit your goal. Developing a clear-cut action plan can get you that much closer to debt-free status in 2016.
1. Add up Your Debt
You canât start attacking your debt until you know exactly how much you owe. The first step to paying down your debt is sitting down with all of your statements and adding up every penny thatâs still outstanding. Once you know how deep in debt you are, you can move on to the next step.
2. Review Your Budget
A budget is a plan that sets limits on how you spend your money. If you donât have one, itâs a good idea to put a budget together as soon as possible. If you do have a budget, you can go over it line by line to find costs you can cut out. By eliminating fees and unnecessary expenses like cable subscriptions, youâll be able to use the money you save to pay off your debt.
3. Set Your Goals
At this point in the process, you should have two numbers: the total amount of money you owe and the amount you can put toward your debt payments each month. Using those two figures, you should be able determine how long itâs going to take you to pay off your mortgage, student loans, personal loans and credit card debt.
Letâs say you owe your credit card issuer $25,000. If you have $500 in your budget that you can use to pay off that debt each month, youâll be able to knock $6,000 off your card balance in a year. Keep in mind, however, that youâll still need to factor in interest to get an accurate idea of how the balance will shrink from one year to the next.
4. Lower Your Interest Rates
Interest is a major obstacle when youâre trying to get out of debt. If you want to speed up the payment process, you can look for ways to shave down your rates. If you have high-interest credit card debt, for instance, transferring the balances to a card with a 0% promotional period can save you some money and reduce the amount of time itâll take to get rid of your debt.
Refinancing might be worth considering if you have student loans, car loans or a mortgage. Just remember that completing a balance transfer or refinancing your debt isnât necessarily free. Credit card companies typically charge a 3% fee for balance transfers and if youâre taking out a refinance loan, you might be on the hook for origination fees and other closing costs.
5. Increase Your Income
Keeping a tight rein on your budget can go a long way. But thatâs not the only way to escape debt. Pumping up your paycheck in the new year can also help you pay off your loans and increase your disposable income.
Asking your boss for a raise will directly increase your earnings, but thereâs no guarantee that your supervisor will agree to your request. If youâre paid by the hour, you can always take on more hours at your current job. And if all else fails, you can start a side gig to bring in more money.
Hold Yourself Accountable
Having a plan to get out of debt in the new year wonât get you very far if youâre not 100% committed. Checking your progress regularly is a must, as is reviewing your budget and goals to make sure youâre staying on track.
Photo credit: ©iStock.com/BsWei, ©iStock.com/marekuliasz, ©iStock.com/DragonImages
The post How to Escape Debt in 2016 appeared first on SmartAsset Blog.
Source: smartasset.com
Repossession Credit Scores: What You Need to Know
One of the harsh truths of secured loans is that your asset can be repossessed if you fail to make the payments. In the words of the FTC, âyour consumer rights may be limitedâ if you miss your monthly payments, and when that happens, both your financial situation and your bank balance will take a hit.
On this guide, weâll look at what can happen when you fall behind on your car payments, and how much damage it can do to your credit score.
What is a Car Repossession?
An auto loan is a loan acquired for the sole purpose of purchasing a car. The lender covers the cost of the car, you get the vehicle you want, and in return you pay a fixed monthly sum until the loan balance is repaid.
If you fail to make to make a payment or youâre late, the lender may assume possession of your car and sell it to offset the losses. At the same time, they will report your missed and late payments to the main credit bureaus, and your credit score will take a hit. Whatâs more, if the sale is not enough to cover the remainder of the debt, you may be asked to pay the residual balance.
The same process applies to a title loan, whereby your car is used as collateral for a loan but isnât actually the purpose of the loan.
To avoid repossession, you need to make your car payments on time every month. If you are late or make a partial payment, you may incur penalties and itâs possible that your credit score will suffer as well. If you continue to delay payment, the lender will seek to cover their costs as quickly and painlessly as possible.
How a Repossession Can Impact Your Credit Score
Car repossession can impact your credit history and credit score in several ways. Firstly, all missed and late car payments will be reported to the credit bureaus and will remain on your account for up to 7 years. They can also reduce your credit score.Â
Secondly, if your car is repossessed on top of late payments, you could lose up to 100 points from your credit score, significantly reducing your chances of being accepted for a credit card, loan or mortgage in the future.Â
And thatâs not the end of it. If you have had your car for less than a couple of years, thereâs a good chance the sale price will be much less than the loan balance. Car repossession doesnât wipe the slate clean and could still leave you with a sizable issue. If you have a $10,000 balance and the car is sold for $5,000, you will owe $5,000 on the loan and the lender may also hit you with towing charges.
Donât assume that the car is worth more than the value of the loan and that everything will be okay. The lender isnât selling it direct; they wonât get the best price. Repossessed vehicles are sold cheaply, often for much less than their value, and in most cases, a balance remains.Â
Lenders may be lenient with this balance as itâs not secured, so their options are limited. However, they can also file a judgment or sell it to a collection agency, at which point your problems increase and your credit score drops even further.
How Does a Repo Take Place?
If you have a substantial credit card debt and miss a payment, your creditor will typically take it easy on you. They canât legally report the missed payment until at least 30-days have passed and most creditors wonât sell the account to a collection agency until it is at least 180-days overdue.
This leads many borrowers into a false sense of security, believing that an auto loan lender will be just as forgiving. But this is simply not true. Some lenders will repo your car just 90-days after your last payment, others will do it after 60 days. They donât make as many allowances because they donât need toâthey can simply seize your asset, get most of the money back, and then chase the rest as needed.
Most repossessions happen quickly and with little warning. The lender will contact you beforehand and request that you pay what you owe, but the actual repo process doesnât work quite like what you may have seen on TV.Â
Theyâre not allowed to break down your door or threaten you; theyâre not allowed to use force. And, most of the time, they donât need to. If they see your car, they will load it onto their truck and disappear. Theyâre so used to this process that they can typically do it in less than 60-seconds.
It doesnât matter whether youâre at home or at workâyou just lost your ride.
What Can You Do Before a Repo Hits Your Credit Score?
Fortunately, there are ways to avoid the repo process and escape the damage. You just need to act quickly and donât bury your head in the sand, as many borrowers do.
Request a Deferment
An auto loan lender wonât waste as much time as a creditor, simply because they donât need to. However, they still understand that they wonât get top dollar for the car and are generally happy to make a few allowances if it means you have more chance of meeting your payments.
If you sense that your financial situation is on the decline, contact your lender and request a deferment. This should be done as soon as possible, preferably before you miss a payment.
A deferment buys you a little extra time, allowing you to take the next month or two off and adding these payments onto the end of the term. The FTC recommends that you get any agreement in writing, just in case they renege on their promise.
Refinance
One of the best ways to avoid car repossession, is to refinance your loan and secure more favorable terms. The balance may increase, and youâll likely find yourself paying more interest over the long-term, but in the short-term, youâll have smaller monthly payments to contend with and this makes the loan more manageable.
You will need a good credit score for this to work (although there are some bad credit lenders) but it will allow you to tweak the terms in your favor and potentially improve your credit situation.
Sell the Car Yourself
Desperate times call for desperate measures; if youâre on the brink of facing repossession, you should consider selling the car yourself. Youâll likely get more than your lender would and you can use this to clear the balance.Â
Before you sell, calculate how much is left and make sure the sale will cover it. If not, you will need to find the additional funds yourself, preferably without acquiring additional debt. Ask friends or family members if they can help you out.
How Long a Repo Can Affect Your Credit Score
The damage caused by a repossession can remain on your credit score for 7 years, causing some financial difficulty. However, the damage will lessen over time and within three or four years it will be negligible at best.
Derogatory marks cease to have an impact on your credit score a long time before it disappears off your credit report, and itâs the same for late payments and repossessions.
Still, that doesnât mean you should take things lightly. The lender can make life very difficult for you if you donât meet your payments every month and donât work with them to find a solution.
What About Voluntary Repossession?
If youâre missing payments because youâve lost your job or suffered a major change in your financial circumstances, it may be time to consider voluntary repossession, in which case there are no missed payments and you donât need to worry about repo men knocking on your door or coming to your workplace.
With voluntary repossession, the borrower contacts the lender, informs them they can no longer afford the payments, and arranges a time and a place to return the car. However, while this is a better option, it can do similar damage to the borrowerâs credit score as a voluntary repossession, like a traditional repossession, is still a defaulted loan.
Missed payments aside, the only difference concerns how the repossession shows on the borrowerâs credit report. Voluntary repossession will look better to a creditor who manually scans the report, but the majority of lenders run automatic checks and wonât notice a difference.
Summary: Act Quickly
If you have student loan, credit card, and other unsecured debt, a repo could reduce your chances of a successful debt payoff and potentially prevent you from getting a mortgage. But itâs not the end of the world. You can get a deferment, refinance or reinstate the loan, and even if the worst does happen, it may only take a year or so to get back on track after you fix your financial woes.
Repossession Credit Scores: What You Need to Know is a post from Pocket Your Dollars.
Source: pocketyourdollars.com
If a Mortgage Lender Reaches Out to You, Reach Out to Other Lenders
A lot of homeowners are looking to refinance their mortgages at the moment. Thatâs abundantly clear based on the record volume of refis expected this year, per the MBA. And while mortgage rates are in record low territory, thus making the decision to refinance an easy one for most, it still pays to shop around. [&hellip
The post If a Mortgage Lender Reaches Out to You, Reach Out to Other Lenders first appeared on The Truth About Mortgage.
Source: thetruthaboutmortgage.com
Mint Money Audit 6-Month Check-In: How Did Michelle Allocate Her Windfall?
In March I offered some financial advice to Michelle, a Mint user who was struggling with debt, a lack of retirement savings and a bit of family financial drama amongst her siblings.
Michelle was anticipating a cash bonus from her company and wasnât sure if she should save the money or use it to relieve her debt.
I recommended a two-prong approach where she uses the cash to play savings catch-up in her retirement account and knock down some of her debt, which, at the time, included a $3,000 credit card balance and $52,000 in student loans.
Six months later, Iâve checked in with the 38-year-old real estate developer, to see if any of my advice was helpful and if sheâs experienced any shifts in her financial life.
We spoke via email:
Farnoosh: Have your finances have improved over the last 6 months since we last spoke? If so, what has been the biggest improvement?
Michelle: Yes. I’ve aggressively been contributing to my 401(k) â about 50% of my pay – and had hoped to reach the annual maximum of $18,000 by June, but looks like it will be more like October. I also received a $40,000 distribution from a project that I closed.
F: What aspects of your financial life still challenge you?
M: Investing for sure. I never know if I’m hoarding too much cash. I am truly traumatized from the financial downturn. I just joined an online investment platform, but it was also overwhelming. Currently I have $45,000 in a regular savings account that earns 1.5%.
Another challenge is not knowing whether to just bite the bullet and pay off my student loans or to continue to pay them monthly.  I hate that I’m still paying loans 16 years after I graduated and it’s a source of frustration [and embarrassment] for me.  I owe $36,000. Often times I have an inner monologue about the pros and cons of just paying them off but then my trauma from 2008 kicks inâ¦and I decide to keep my $45,000 nest egg safely where I can check the balance daily.
F: I recommended allocating $45,000 towards retirement. Was that helpful? What are some ways you’ve managed to save?
M: Yes, I recall you saying you recommended having a total of $100,000 towards retirement for a person my age. Currently, I have $51,000 in my 401(k), $35,000 in a traditional IRA and $17,000 in my Ellevest brokerage account, so I’ve broken the $100,000 goal.
I did add a car note to my balance sheet. My old car suffered a total loss (major electrical failure due to a sunroof leak!) and the insurance gave me a check for $9,000. I used it all towards the new vehicle (a certified used 2014 Acura) and I’m financing $18,000.
F: Your dad’s home was a source of financial stress, it seemed. Were you able to talk with your siblings and arrive at a better place with that?
M: My dad actually has passed since we last spoke. He passed in February and so his will went to probate. My siblings and I have decided not to make any decisions about the house for at least one year. Yes, this is kicking the can further down the street however, they recognize that I maintain the house and pay the real estate taxes and so they are not pressuring me to move or to sell.
The new deed has been recorded and the property is under all our names and so everyone seems ok with knowing that I can’t do anything regarding a sale or refinance unilaterally.
So, for now, I live rent free other than paying utilities, miscellaneous maintenance on the house and real estate taxes quarterly. This, too, is helping me save aggressively.
Also, the new car note has replaced the hospice nurse contribution so I’m not feeling that my budget is overburdened with the new car.
I think ultimately I will buy out at least two of my siblings and stay in the house. Verbally they have expressed being okay with this.
Have a question for Farnoosh? You can submit your questions via Twitter @Farnoosh, Facebook or email at farnoosh@farnoosh.tv (please note âMint Blogâ in the subject line).
Farnoosh Torabi is Americaâs leading personal finance authority hooked on helping Americans live their richest, happiest lives. From her early days reporting for Money Magazine to now hosting a primetime series on CNBC and writing monthly for O, The Oprah Magazine, sheâs become our favorite go-to money expert and friend.
The post Mint Money Audit 6-Month Check-In: How Did Michelle Allocate Her Windfall? appeared first on MintLife Blog.
Source: mint.intuit.com
An Alternative to Paying Mortgage Points
If and when you take out a mortgage, youâll be faced with an important choice. To pay or not pay mortgage points. In short, those who pay points should hypothetically secure a lower interest rate than those who do not pay points, all else being equal. Thatâs because mortgage points, at least the ones that [&hellip
The post An Alternative to Paying Mortgage Points first appeared on The Truth About Mortgage.
Source: thetruthaboutmortgage.com
Why Are Refinance Rates Higher?
Mortgage Q&A: âWhy are refinance rates higher?â If youâve been comparing mortgage rates lately in an effort to save some money on your home loan, you may have noticed that refinance rates are higher than purchase loan rates. This seems to be the case for a lot of big banks out there, including Chase, Citi, [&hellip
The post Why Are Refinance Rates Higher? first appeared on The Truth About Mortgage.
Source: thetruthaboutmortgage.com