- 4 min read
- Focus on how to get out out of debt, not on your current stress level.
- Start with ways you can get out of debt on your own.
- If the problem is more than you can handle, seek professional debt relief assistance.
Six Simple Steps about How to Get Out of Debt
You get to the grocery store checkout, use your debit card to pay, then realize your checking account doesn’t have enough money to cover the amount due. You pull out your charge card and tell yourself, "I'll pay this debt off next month."
Not only are you unable to pay off the groceries, an unexpected medical issue leads you to charge another month’s groceries, plus the emergency room fees aren’t covered by your insurance.
With higher rent payments and utility costs climbing, your “cost of living” raise does not cover your actual living costs. The credit card finance charges begin to mount. The next month, you struggle to scrape together your payment — but it’s late, and your credit card company tacks on extra fees and hikes your interest rate to 29.99%.
Your minimum payment goes up again, and after a car repair, you accumulate a balance of several thousand dollars and can’t pay more than the minimum payment.
Does this sounds familiar? Not the exact details, necessarily, but being stretched financially to the point of breaking.
If not you, do you know someone else facing this kind of situation? Many Americans are over their head in debt. If you’ve ever been there, you know that it leads to feeling helpless and trapped. Once the snowball starts rolling, debt piles up and your ability to control the problem seems out of grasp.
If you are struggling with debt, especially credit card debt, you aren't alone. Overall debt levels are rising. According to the NY Federal Reserve, Americans are carrying almost $834 billion in credit card debt, as of February 2018, up $55 billion from just two months ago.
Rising debt and higher interest rates are a killer combo, sure to increase financial stress. The key is not to be overwhelmed. Use this is as an opportunity to resolve the debt. When you put a plan in place and begin taking positive steps, you'll feel your stress level drop. It takes discipline to stick to the plan, but positive results produce increased motivation and satisfaction.
Get Out Of Credit Card Debt
If you’re fighting an uphill financial battle, the following six steps will minimize the damage of mounting debt, and help you get out of debt.
- Stop charging. With credit cards often serving as “emergency funds,” be sure you aren’t doing additional damage to your financial well-being by charging things you don’t need.
- Always pay on time. Even if you only can make minimum payments, send your payment on time. Late payments risk higher interest rates (penalty rates can be more than 30%), which mean still higher minimums. Plus, late payments mean late fees, adding still more to the mountain of debt.
- Pay more than the minimum. Don’t get caught in the trap of making only minimum payments. Adding even $10 or $20 to your payment — or rounding payments up to the next $10 or $100 increment — will knock out debt faster without adding much to your fiscal pain.
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- Eliminate the highest-interest-rate debt first . Pay as much as you can over the minimum payment on your highest-rate debt, paying minimum payments on all other debts. When you pay off the highest interest debt, move on to your next-highest-rate debt. Save tax-deductible debt, such as student loans or mortgages, for last. (Some people prefer to target the smallest debt, to get the psychological boost of paying of a creditor sooner. Either way, what is most important is for you to pick a strategy and stick to it.)
- Negotiate your rate. If you have a history of always paying on time and simply have accumulated more debt than usual, you might be your creditor’s ideal customer. Call your card’s customer service line and ask if they can give you a better rate. FYI, the national average credit card rate is over 14% as of February 2018, according to the Federal Reserve.
- Seek help. You might not realize how many sources of help are available to help you get out of debt, especially if the situation was caused by a short-term problem such as a medical emergency. For instance, you could borrow from relatives, borrow against life insurance or retirement funds, or consolidate old debt onto a no-interest credit card. For more ideas, use Bills.com’s free Debt Navigator tool to help you understand your options to solve your tough debt problems.
You can get out of debt. Taking quick action is critical. Act before it’s too late to prevent a temporary hardship from becoming a long-term financial crisis.
Struggling with debt?
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q2 2023 was $17.06 trillion. Student loan debt was $1.569 trillion and credit card debt was $1.031 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
The amount of debt and debt in collections vary by state. For example, in Kentucky, 32% have any kind of debt in collections and the median debt in collections is $1282. Medical debt is common and 17% have that in collections. The median medical debt in collections is $491.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.