Become a Credit Card Debt Destroyer

Ways to Help Cut Your Bills Down to Increase Your Financial Health

By Stephen Mazeika

If credit card debt can be likened to a sporting event, it’s very obvious that lately consumers have been losing the match against credit card debt by a landslide. Due to the fact that our nation and the rest of the world are presently seeing tough economic times, many companies aren’t making it easier on ordinary folks with credit lines.

In order to compensate for all of the defaulted credit lines and loans that they’ve issued, many of these credit companies are starting to raise rates and fees on their cards. This is especially harmful for consumers in an increasingly volatile job market, where unemployment has steadily increased within the last few quarters. So what’s the solution? How do we fight back against debt and manage our credit lines efficiently to help us even the score? Here are some helpful do’s and don’ts that may shed some light on easy ways to alleviate some of the nagging financial burdens that have had consumers singing the blues over the last few painful recessionary months.

The Balance Transfer Method

The balance transfer method can be helpful, but certain criteria need to be met in order to take advantage of this option. By transferring your presently accrued credit card debt to a new 0% or low interest account, it is possible to help handle your existing debt with the lower rates and pay it off as quickly and efficiently as possible. Sounds easy right? Well there are some specifications that may get in the way.

First off, this option may not even be available to those with lower than average credit scores as banks may not be willing to perform this service for customers with less-than-perfect credit histories. Secondly, there is typically a small percentage fee attached to this maneuver; typically around 3% of the debt. So if you have an existing debt of $10,000 and there’s a 3% fee attached, you’ll owe $300. Lastly, there is usually a time frame attached to the payment of the debt with the 0% or low interest expiring after this limit is reached which is typically around 6-12 months. After this time limit expires, the interest rates may go up dramatically.

Home Equity Line of Credit

This method is often popular as it gives people the ability to pay of their debt more quickly with lower interest rates and tax deductions. However, there are some very big drawbacks to this strategy. By securing an unsecured debt, you are risking your home, typically a person’s largest and most valuable asset as collateral which can be dangerous if you make some bad decisions with the money you get from the credit line. This is why you need to have adequate equity in the home and a good credit history to qualify for this option, as these types of credit lines are a large contributor to our current gloomy housing market with high amounts of foreclosure. The current interest rate is 5% if you qualify which is great, but experts say that a negative drawback to this is that it may take you a significantly longer amount of time to pay off this debt.

Using Your 401K

There are several benefits that may come out of leveraging your 401K to help out with debt and borrowing. It can serve as collateral when borrowing against your savings account with the option of paying yourself back. You can also elect to reduce your 401K contribution by meeting only the company’s minimum and instead use the extra money to pay of some of your debt. There are, however, several major drawbacks to this strategy.

Liquidating some of your investments to pay off debt may be great in the present, but in the long term some of these securities’ values may increase with a future economic recovery leaving you in the dust with no benefit. Also, as a major contributing risk factor, if you end up losing your job you would be expected to pay the debt right away plus income taxes and a 10% penalty. This could be especially burdensome in a tough situation like job termination, so this risk should be taken into consideration if you believe your job security is questionable in these tough economic times.

Keeping it Simple

According to Roy Williams, the founder of Prestige Wealth Management Group in Pennington, N.J., sometimes asking a family member, parent, or sibling for a loan at a rate higher than current savings accounts can be a great option. Not only do you have family loyalty and trust and more importantly significantly lower restrictions and penalty risks, your family member will be better compensated than if they had the money saved in an account. From a dual standpoint, it’s a win-win. Williams says somewhere around 4-5% should be enough to make it beneficial for your lender while not too burdensome for yourself, the debt holder.

Another easy option is calling your credit card company. Typically, if your credit history is sufficient and you’ve made a majority of your payments on time, you can secure a cheaper interest rate. Repeated calls over several months coupled with good timely payments should increase the chances of your credit institution continually accommodating a lower rate as they are always willing to reward those who pay their bills on time.

Lastly, the oldest and yet seemingly always the wisest financial advice that we’ve heard time and time again from grandpa or great aunt Sally is to save money and trim those expenses. The ‘do more with less’ approach is always a great idea for those who have mounted debt that they are trying to climb out of. According to experts, the best idea is to pay off your maxed out cards first as they are the ones that determine your credit score which is most important, and make some extra payments instead of always just paying the minimum. This can help you establish efficient spending habits that will aid in successful debt management and future financial health.