Nine Ways to Cut Your Credit Card Debt

If it seems like you’re drowning in credit card debt and you’ll never get out, don’t despair. We have 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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