How to Get Out of Debt
Like many Americans, you might be in more debt than you had planned for. The average American owes $7,281 in credit card debt alone, according to the Federal Reserve and other government statistics. Maybe your debt obligations are such that every dollar from every paycheck goes toward expenses. Additionally, having a large amount of debt increases the amount of stress and worry in your life. If you want to know how to get out of debt, explore these helpful tips from First Federal Bank.
Create Your Own Debt-Reduction Plan
A debt-reduction plan requires careful analysis of your current expenses and a disciplined approach to pay down your debt. When you identify your debt, you can start paying it off in different ways. Some people start with their lowest amount of debt in order to feel the gratification of eliminating one obligation from their list. Others start with the debt carrying the highest interest rate because the quicker they pay that off, the more money they will save in the long run. In the meantime, they are making minimum payments on their other debts while they work to pay off one in full.
After one debt is paid off, it's important to take the amount of money you were paying and apply it to the next debt obligation on your list. This approach to paying off debt keeps you focused on the task at hand rather than incurring more expenses. You'll see yourself progressing steadily toward debt-free status.
Consider a Debt Consolidation Loan
You may be able to take out a personal loan to consolidate all your debts, and then pay off that loan, often at a lower interest rate than what your debts carried individually. Beware of the false sense of security that comes with this approach. You need to be mindful not to run up new debt on your credit cards simply because your card balance is $0. Remember, you have shifted the debt to the loan and it is not eliminated until you have paid off the consolidation loan.
If you are a student working to pay of student debt, consider a Direct Consolidation Loan. This will give you time to pay down your debt without incurring additional interest expense from your higher interest rate credit card.
Balance Transfer Credit Card Debt
If you are in credit card debt, one option to help you get out of debt is to transfer your balances to another credit card with a lower interest rate. Explore First Federal Bank’s Credit Cards that offer 1 point for every $1 spent and up to 4x more bonus points at participating retailers. Plus, you can view your FICO® Score for free with your monthly statement, and get tips on what's impacting your score.
You can also look for a credit card that offers and introductory period for balance transfers with 0% interest for 12 – 24 months. This can give you time to pay down your debt without incurring additional interest expense from your higher interest rate credit card.
Debt Settlements When Collectors Call
Debts that are overwhelming you and can't be paid back could be eligible for a debt settlement to stop the collection agencies from calling you every day. This approach involves negotiating with your creditors over a settlement amount that is lower than the amount you actually owe. While a debt settlement reduces the amount you will pay back, it comes with an aggressive timeline for repayment. You may have only 24 months to pay off 30% to 50% of your original debt owed. Consider whether this option is better than declaring bankruptcy, and if it is, be prepared for some stressful months when you're tightening your belt significantly to meet the terms of your settlement.
Every Little Bit Counts
When you’re struggling to get out of debt, reducing your expenses and putting that savings towards your debt can help. Here are some ideas you can do to cut down on your everyday costs to help get out of debt faster:
- Apply your tax refund towards your debt
- Cut down on eating out and frivolous items – spend time meal planning
- Sell things you don’t need
- Go to the library instead of buying or renting books, CDs and DVDs
- Find fun ways to enjoy yourself for less – go for a hike, bike ride or picnic
- Cut the cord – for cable, and find less expensive streaming options for TV
- Shop when products are on sale - use our helpful guide to see what's on sale each month
The key to this strategy is to use it in tandem with others, and to use the savings towards paying down debt. It could also help to get a second job or try to find odd jobs to bring in some extra cash. Think about your hobbies and skills and how you could put those to best use.
Being in debt isn’t fun, but you can get relief. If you need help to build a plan to get out of debt, or want to speak with us about your options, please contact us or visit us in person at one of our branches in Ohio, Michigan or Indiana.