This Part 2 continues the blog post How to Pay Off Credit Card Debt; here is Part 1 of the post that was published several weeks ago.
More strategies to manage and reduce credit card debt
There is no single solution to paying off credit card debt—it depends on your situation. But regardless of your income or lifestyle, it’s essential to make debt reduction a financial priority. Doing so may mean putting off nonessential spending or making temporary lifestyle adjustments. Following are more practical approaches to help reduce or eliminate credit card debt:
Depending on your specific situation, a personal loan may help lower payments, cut debt and, possibly, provide more available cash at the end of each month. Here’s an example of how a personal loan might help some consumers financially in one debt circumstance. Note that the interest rates stated are hypothetical and may not be representative of the interest rates charged by a credit card issuer or offered by a financial institution.
Suppose you have a total of $10,000 in credit card debt that is being charged at an annual percentage rate (APR) of 16% by the credit card issuer. That 16% of $10,000 is $1,600 a year that must be paid in interest charges. You then apply for and are offered a personal loan of $10,000 to pay off the debt, but that loan has an annual interest rate of 6%.
Using the loan, the $10,000 credit card debt is gone, but it’s replaced with a personal loan debt of the same amount. Yes, you’re still in debt, but you’ve replaced $10,000 of debt at 16% interest with $10,000 of debt at 6% interest, which is approximately $600 in yearly interest charges. With the lower interest rate, you’ve saved about $1,000,
Note that a personal loan is not appropriate in every debt situation, so it’s important to do a financial analysis—and maybe get free, independent financial advice—to determine if, overall, a personal loan could provide some cost savings. It may also be useful to get input from family and friends and learn from any experience they’ve had managing a personal loan.
Consider a personal loan from a family member or friend. Would a loan from someone you know and trust (and who trusts you) be a realistic option for managing credit card debt? A personal loan from someone in your family or from a friend—with specific repayment conditions laid out in a written document—may help cut down or wipe out the debt and provide easier, more flexible payoff options with a lower interest rate or longer pay-off period than a loan from a company. Even a loan from family or a friend should be documented in the form of a written contract, and it may be helpful to seek the assistance of an attorney in creating finalizing the loan contract.
Try to control spending, lower other expenses or generate more income to create more funding for debt payoff. If reducing damaging credit debt is a priority, then it may be worth making some financial sacrifices to make more funds available to cut the debt down and prevent it from growing. If you’re committed to limiting and shrinking credit card debt, here are a few ideas for saving money in other areas of your life:
- Defer non-essential travel such as recreational trips.
- Eliminate entirely or get less expensive monthly plans for cellular, internet, video and music streaming, and television services.
- If you’re not using a gym membership consistently enough to create health benefits, then stop the membership for now.
- Cook more at home rather than getting takeout or delivery, including lunches and takeout coffee.
- Buy store brands at the grocery store.
- Stop or limit going to live events, such as concerts, plays, musicals or live music clubs.
- Hold off on making any big purchases unless they are absolutely necessary, such as a car or major household appliance.
- Try to negotiate lowering your rate plans with utility providers or services such as home security alarms, electricity, home phone service, natural gas, trash pick-up, water, etc.
- Attempt to work out a revised payment plan for your mortgage or car loan.
- Switch to a different insurance policy or possibly negotiate a lower rate for car or home insurance.
- Make an effort to reduce the regular payments for (or defer paying) school tuition or tuition loans.
- If you are a two-car (or more) household, consider whether you can give up one car permanently because of alternative working from home or public transportation options.
- Defer buying gifts for birthdays, anniversaries, school graduation, bridal, wedding or baby showers or for major holidays.
- Offer some of your gently used clothing to a consignment store to try to bring in some extra cash.
- Depending on the season, lower or raise the thermostat and lower the water heater temperature to save a little more on electricity costs.
- Make minor home improvements, maintenance or fixes such as painting rooms, weather-stripping windows, cleaning the furnace and replacing air filters, mowing lawns, cleaning gutters, or filling in driveway cracks instead of hiring someone to handle these types of chores.
Avoid using a credit card and pay more bills with cash. It may be tough to switch to cash, paper checks, digital payments or a debit card, but not using the credit card—including removing it from any regular automated payments, such as for car insurance or cellular phone service—is the most direct method for not building up more debt on the card.
Interested in more advice on personal money management, online safety, and avoiding scams?
Please look into some of the free Delta Community Financial Education Center live workshops which are available to both Credit Union members and the general public. The Financial Education Center's Events & Seminars page has a registration form for its monthly, no-cost webinars with practical, actionable advice on managing personal finances, including saving and spending suggestions. The work of the Financial Education Center reflects Delta Community’s mission to help both its members and others in the community achieve financial success throughout their lives.
Delta Community has some more timely financial advice worth looking at:
Free financial counseling might help BALANCE™ your debt
BALANCE™ is a financial education and counseling organization that offers free services to Delta Community members. Some of its services include credit report reviews, debt management, and information on budgeting, money management and home buying.
Visit the BALANCE™ website to learn about their education and assistance programs. Members can also speak with certified credit and housing counselors to get personalized guidance.
Want to connect with a Financial Coach about your specific situation? Call 1-888-456-2227 to speak with a Financial Coach today.
Note that the services offered through BALANCE™ are separate and distinct from any business conducted with Delta Community and are not guaranteed by, nor are they obligations of, the Credit Union.
