Payoff Credit Card Debt
http://creditfederal.com/article/articles/383/1/Payoff-Credit-Card-Debt
By CreditFederal.com - A good or bad credit personal loan, auto and mortgage financing, and credit card resource.
Published on 10/16/2007
Solutions and alternatives to payoff credit card debt and stop more debt.
Tips to Payoff Credit Card Debt
It's less costly to payoff credit card debt than to let interest charges escalate.
Not many people can whip out a check and payoff credit card debt in full, particularly those with debt of $10,000, $50,000 or higher. And it's not uncommon to fall into the debt trap after just two months of not fully paying off the balance in full.
Pay more than the minimum. Stop paying only the minimum monthly required payment. Not only does this cost you more money in interest charges, but when you delay repaying your loan it may lessen your available credit which may be needed later.
Combine your debt payments. Closely examine your credit cards. Maybe you have one that charges the lowest interest and has the lowest balance. If so, consider transferring the high interest debt from the other credit cards to the lower interest card. If your total balance is too high to fit onto one lower interest rate card, pay at least the minimum amounts due on all of your cards except one. Funnel the majority of your debt repayments into that one credit card, and pay it off as quickly as possible. When the balance on that card reaches zero, move on to the next with the same aggressive repayment plan.
Another way to transfer higher interest debt to a lower interest card is to take advantage of the promotional offers many banks use to entice you to their line of credit.
Cash out your savings account. You could cash out your savings and investments and use the proceeds toward debt repayment. Even when debt interest is at only 12%, your investments would have to pay more than 18% before federal and state taxes to equal that outflow of dollars. Pay off the debt, and it's the same as getting that 18% return without any risk on your part. The higher the interest rate on your debt, the more attractive repayment versus investment becomes.
Borrow against your life insurance. If you have a whole life policy with cash value, you can borrow against it, and the interest rate is typically well below commercial rates and you can take your time repaying the loan. Do repay it, though. If you die before it's repaid, the outstanding balance plus interest will be deducted from the face value of the policy payable to the beneficiary.
Borrow from family and friends. Maybe they'll give you a 0% interest rate plus tolerate a late payment or two. Define the interest and repayment schedule in writing to avoid misunderstandings.
Get a home equity loan. If you own a home with equity, consider a home equity loan (HEL) line of credit.
Borrow from your 401(k). Most 401(k) plans have a loan feature that lets you borrow up to 50% of the account's value, or $50,000, whichever is smaller. Interest rates are usually a point or two above prime, which makes them cheaper than that found on credit cards. Not only is the interest typically much lower than that on credit cards, the best part is you pay it to yourself. But there are some drawbacks. First, the loan and interest will be repaid with after-tax dollars, but the interest will be taxed again when you finally withdraw money from the 401(k) years later. Additionally, you must repay this loan in five years or less. If you leave your employment prior to full repayment, the outstanding balance becomes due and payable immediately. If it's not repaid, that amount will be treated as a distribution to you. You'll be taxed on that amount at ordinary rates. And if you're under the age of 59 1/2, you will also be assessed an additional 10% excise tax as a penalty for an early withdrawal of retirement funds. Accordingly, ensure any 401(k) loan can be repaid before you leave your job.
Renegotiate terms with your creditors. You next-to-last option should be debt negotiation, as it can affect your credit score. Even if you don't want any additional credit, it can still affect the interest rates charged by your existing lenders and card issuers. Let your creditors know your situation. Tell them that if you are unable to renegotiate terms, then you have no other recourse except to declare bankruptcy. Ask for a new and lower repayment schedule; request a lower interest rate; and appeal to their desire to receive payment. Faced with the prospect that you may resort to such a drastic step, creditors will do what they can to protect themselves against a total loss.
File bankruptcy. Bankruptcy should be your last, final solution after expiring all other attempts to repay debt. Bankruptcy will be on your credit report for 10 years. There are two types of personal bankruptcy relief: Chapter 7 and Chapter 13.
Chapter 7 is straight bankruptcy that allows the discharge of almost all debts. Those that aren't discharged are alimony, child support, taxes, loans obtained through filing false financial statements, loans not listed in the bankruptcy petition, legal judgments against the petitioner, and student loans. While Chapter 7 relieves you of the responsibility of repaying most creditors, you may also have to surrender much of the property you own to help satisfy the debt. In general, though, you may usually retain your car, tools of your trade, your home, and most personal property.
Chapter 13, sometimes called the wage-earner plan, is different. You keep your property but surrender control of your finances to the bankruptcy court. The court approves a repayment plan based on your financial resources that provides for repayment of all or part of your debt over a three-to-five-year period. During that time, your creditors may not harass you for repayment. You also incur no interest charges on the indebtedness during the repayment period. When all conditions of the court-approved plan have been fulfilled, you emerge debt-free from the bankruptcy.
Stop More Debt
Getting out of debt is a struggle you shouldn't have to repeat; nor undergo in the first place. Whether you are getting out of debt or are clear of debt, take steps to stay out of debt.
Create a budget. A budget isn't just a strict spending tool, it also helps you realize your financial security and what you need to do to prepare for emergency fund situations.
Start saving now. Even short term savings goals help enforce spending discipline. Keep giving yourself an occasional treat, but get in the habit of planning for them based upon your budget and savings successes.
Before you spend money, ask yourself two basic questions:
1. If I can't pay for it in full this month, what is going to change next month? Where will the extra income come from, or what will I have to give-up?
2. What financial goal am I working towards, and will this slow-down reaching the goal or will deny me of other pleasures or essentials?
Got family? If you have a spouse and children, involve them with the budget and objectives.
Not many people can whip out a check and payoff credit card debt in full, particularly those with debt of $10,000, $50,000 or higher. And it's not uncommon to fall into the debt trap after just two months of not fully paying off the balance in full.
Pay more than the minimum. Stop paying only the minimum monthly required payment. Not only does this cost you more money in interest charges, but when you delay repaying your loan it may lessen your available credit which may be needed later.
Combine your debt payments. Closely examine your credit cards. Maybe you have one that charges the lowest interest and has the lowest balance. If so, consider transferring the high interest debt from the other credit cards to the lower interest card. If your total balance is too high to fit onto one lower interest rate card, pay at least the minimum amounts due on all of your cards except one. Funnel the majority of your debt repayments into that one credit card, and pay it off as quickly as possible. When the balance on that card reaches zero, move on to the next with the same aggressive repayment plan.
Another way to transfer higher interest debt to a lower interest card is to take advantage of the promotional offers many banks use to entice you to their line of credit.
Cash out your savings account. You could cash out your savings and investments and use the proceeds toward debt repayment. Even when debt interest is at only 12%, your investments would have to pay more than 18% before federal and state taxes to equal that outflow of dollars. Pay off the debt, and it's the same as getting that 18% return without any risk on your part. The higher the interest rate on your debt, the more attractive repayment versus investment becomes.
Borrow against your life insurance. If you have a whole life policy with cash value, you can borrow against it, and the interest rate is typically well below commercial rates and you can take your time repaying the loan. Do repay it, though. If you die before it's repaid, the outstanding balance plus interest will be deducted from the face value of the policy payable to the beneficiary.
Borrow from family and friends. Maybe they'll give you a 0% interest rate plus tolerate a late payment or two. Define the interest and repayment schedule in writing to avoid misunderstandings.
Get a home equity loan. If you own a home with equity, consider a home equity loan (HEL) line of credit.
Borrow from your 401(k). Most 401(k) plans have a loan feature that lets you borrow up to 50% of the account's value, or $50,000, whichever is smaller. Interest rates are usually a point or two above prime, which makes them cheaper than that found on credit cards. Not only is the interest typically much lower than that on credit cards, the best part is you pay it to yourself. But there are some drawbacks. First, the loan and interest will be repaid with after-tax dollars, but the interest will be taxed again when you finally withdraw money from the 401(k) years later. Additionally, you must repay this loan in five years or less. If you leave your employment prior to full repayment, the outstanding balance becomes due and payable immediately. If it's not repaid, that amount will be treated as a distribution to you. You'll be taxed on that amount at ordinary rates. And if you're under the age of 59 1/2, you will also be assessed an additional 10% excise tax as a penalty for an early withdrawal of retirement funds. Accordingly, ensure any 401(k) loan can be repaid before you leave your job.
Renegotiate terms with your creditors. You next-to-last option should be debt negotiation, as it can affect your credit score. Even if you don't want any additional credit, it can still affect the interest rates charged by your existing lenders and card issuers. Let your creditors know your situation. Tell them that if you are unable to renegotiate terms, then you have no other recourse except to declare bankruptcy. Ask for a new and lower repayment schedule; request a lower interest rate; and appeal to their desire to receive payment. Faced with the prospect that you may resort to such a drastic step, creditors will do what they can to protect themselves against a total loss.
File bankruptcy. Bankruptcy should be your last, final solution after expiring all other attempts to repay debt. Bankruptcy will be on your credit report for 10 years. There are two types of personal bankruptcy relief: Chapter 7 and Chapter 13.
Chapter 7 is straight bankruptcy that allows the discharge of almost all debts. Those that aren't discharged are alimony, child support, taxes, loans obtained through filing false financial statements, loans not listed in the bankruptcy petition, legal judgments against the petitioner, and student loans. While Chapter 7 relieves you of the responsibility of repaying most creditors, you may also have to surrender much of the property you own to help satisfy the debt. In general, though, you may usually retain your car, tools of your trade, your home, and most personal property.
Chapter 13, sometimes called the wage-earner plan, is different. You keep your property but surrender control of your finances to the bankruptcy court. The court approves a repayment plan based on your financial resources that provides for repayment of all or part of your debt over a three-to-five-year period. During that time, your creditors may not harass you for repayment. You also incur no interest charges on the indebtedness during the repayment period. When all conditions of the court-approved plan have been fulfilled, you emerge debt-free from the bankruptcy.
Stop More Debt
Getting out of debt is a struggle you shouldn't have to repeat; nor undergo in the first place. Whether you are getting out of debt or are clear of debt, take steps to stay out of debt.
Create a budget. A budget isn't just a strict spending tool, it also helps you realize your financial security and what you need to do to prepare for emergency fund situations.
Start saving now. Even short term savings goals help enforce spending discipline. Keep giving yourself an occasional treat, but get in the habit of planning for them based upon your budget and savings successes.
Before you spend money, ask yourself two basic questions:
1. If I can't pay for it in full this month, what is going to change next month? Where will the extra income come from, or what will I have to give-up?
2. What financial goal am I working towards, and will this slow-down reaching the goal or will deny me of other pleasures or essentials?
Got family? If you have a spouse and children, involve them with the budget and objectives.