If you are in debt and you want to improve your financial future, we highly recommend looking at doing everything you can to erase debt from your life. Debt just weights you down with monthly payments, costing you money with finance charges, and constant, unneeded stress in your life because of it. Most any place that you start looking for tips for financial planning will tell you that you need to get out of debt before you start investing.
Debtor Beware
Beware of programs that claim to be able to erase bad credit, because most of these programs are just scams. Although they can legally erase debt, it looks almost as bad as a bankruptcy on your credit, so while you won’t be paying the debt back and clear debt for good, it’s going to be a lot harder for you to get a mortgage, a refinance, a car, or even a credit card because of it. Think twice before considering these types of programs as a way to erase your debt.
If you want to really get out of debt without it harming your credit report, then follow these steps below:
Credit Card Debt – The Source Of Most Debt Problems
The first major step is to erase credit card debt. This is considered consumer debt, as opposed to a mortgage, a car loan, or even student loans. Instead of just trying to settle credit card debt, it is best to try and pay it off which will boost up your credit score. It is best to pick which credit cards have the higher APR for finance charges, so once you begin paying those off, you’ll be charged less and less in finance charges. Some schools of thought think that starting with the credit card that has the lowest amount on it can help you to have momentum, but if you go that route, then if you have a larger balance on a card with a higher APR, you’ll be getting more in finance charges each month. It is best to not get those finance charges, and use the money you are saving on finance charges to pay off your debt quicker. It is not good to have momentum leading up to your credit card with the highest balance on it, because then it will seem like a huge mountain compared to what you’ve been paying off, plus it will have grown because of finance charges.
As you begin to erase your debt, once you get below 50% of your total available credit (So, $5,000 left in debt if you have $10,000), your credit score will increase. That 50% mark is often what creditors begin to look at. One trick that used to be really helpful for erasing credit card debt was to move your credit card balances to an unsecured credit card with 0% interest rates for a certain period, and then move them to a new 0% card once that trial period was over. Credit card companies got wise to this trick for erasing debt, and began implementing around 3% flat fee to move the credit card balance over to the 0% card. Sometimes this can still help you if you want to move from a credit card with a very high interest rate (above 3%) but just be sure the rate after the increase from 0% isn’t higher than the original card.
Pay Off Your Car
If you didn’t buy your car in cash, then shame on you. No seriously, if you didn’t then set a plan for yourself to pay ahead of schedule. Hopefully you didn’t buy a very expensive car, so this should be a fairly easy one to take care of. And in the future when you buy a car, you’re going to buy a fuel-efficient, safe, and newly used car, right? Brand new cars are never a good idea financially, they’re just an emotional buy.
Extra Payments on Your Home
Once your credit card debt and car(s) are paid off, take a look at what you can do to make some extra payments on your home. It’s very likely that the higher APRs were on the above said debts, because hopefully you already have a great rate for your mortgage. Yes this is difficult to pay of because the debt amount is much larger, but just think about you and your family as a business, and that you are building profitability for your family unit.
All Other Debts
Now look at paying off all of your student loans, medical bills if you didn’t have insurance during some medical crisis, etc. Of course, paying off everything to erase debt won’t always be in this order, but this post should give you a good general idea of what to do.
In final, it is definitely possible to erase debt, but it takes hard work and focus over many months and years, but once you’ve got your debt paid off, it is definitely a nice, freeing feeling, and you won’t be paying needless finance charges, so that you can actually get ahead financially.
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