How to Get Out of Debt
It’s no secret—Americans really know how to get into debt. U.S. household debt climbed to $13.95 trillion in the third quarter of 2019, up from $13.54 trillion the prior year. The numbers are even more staggering on a personal level. The average family with credit card debt owes $8,500, whereas an average household with auto loans owes about $27,800, student loans average $46,800, and average mortgage debt is around $189,600.
Fewer Americans understand how to get out of debt. While it starts with willpower, there are proven financial strategies to consider. Piedmont Advantage Credit Union in North Carolina offers a variety of tools and resources to help you improve your financial wellness, including low-interest loans, credit card options, webinars, and seminars.
Make the Commitment
If you’re carrying a lot of debt, be prepared to put about 15% of your income toward reducing it. Making only minimum payments on your credit cards and other loans will cause interest charges to pile up, meaning it will be difficult to break the cycle and get out of debt. Here’s how you can begin to get out of debt:
- Find online assistance. Consider investing in debt-elimination software to help you run the numbers and set priorities. Popular choices include Quicken, Zilch Works, and Undebt.it. Smartphone apps, such as Debt Payoff Planner and Debt Free, are also available. Piedmont Advantage’s free Debt Consolidation Calculator will help you understand how rolling your debt into a single loan can save you money in the long run.
- Tighten the belt. To free up money for debt payments, you’ll need to reduce your spending immediately. Come up with a monthly budget, put it in writing, and stick to it. Use Piedmont Advantage’s Home Budget Calculator to keep tabs on your income, expenses, and opportunities to save. Cut back where you can by cooking rather than dining out. Cancel cable and opt for a more cost-effective streaming service such as Hulu or YouTube TV. Even bargain hunt for great deals on discount sites like Groupon and Slickdeals. Small adjustments to your spending habits can add up over time.
- Seek bigger savings. Evaluate your insurance policies to see if you can find less-expensive coverage that still meets your needs. Piedmont Advantage can help you find affordable alternatives to your home, auto, life and long-term care, and health insurance policies without sacrificing coverage.
Use Credit Cards Wisely
Credit cards offer convenient buying power and can earn you valuable rewards. Problems arise, however, if you charge too much and carry a balance, causing interest to accumulate.
- Set priorities. If you have multiple credit cards, first identify the one with the highest interest rate. Pay that card down as aggressively as possible while making minimum payments on the others. After the first card is paid off, allocate your largest payment to the card with the second-highest interest rate, and so on, until you eliminate your credit card debt.
- Look for 0% interest rates. Another technique is to apply for a new credit card that offers a promotional 0% interest rate, usually for a period of 12 to 24 months, then transfer all outstanding balances to the new card. This will buy you time to pay down the balance without accruing additional credit card interest charges. Piedmont Advantage Credit Union offers a number of credit cards to help our North Carolina members keep their debt under control.
Be Strategic About Your Loans
Buying a home, getting a new car, sending your children to college; these can all be worthwhile investments, and borrowing money is a great way to make them happen. While loans can afford you the opportunity to make major expenditures, keeping up with the payments can be a challenge.
- Make mortgages manageable. Most homes are financed with 15- or 30-year mortgages, but you’re not obligated to keep the original loan that long. If interest rates drop, consider refinancing. Even a 1% rate reduction can trim payments on a $200,000 mortgage by well over $100 per month. If rates haven’t dipped, switching to a loan with a longer payoff period will reduce monthly payments and free up cash to pay off shorter-term debt. Piedmont Advantage can help you navigate our many mortgage refinancing options. Check out our current mortgage rates.
- Shift gears. Consumers often drive away from an auto dealer with a vehicle they love but a loan they don’t. The solution is to trade in that unsatisfactory loan on your new car, motorcycle, or RV. Refinancing to a lower interest rate or longer repayment period will reduce monthly payments and minimize stress on your household budget. Piedmont Advantage provides a range of auto refinancing options to help you get back on track. Check out our current vehicle loan rates.
- Simplify student loans. Student debt can be crippling. One solution is to consolidate all those years of school loans into a single new loan to reduce overall monthly payments and simplify your finances. College grads with federal loans can apply for a Direct Consolidation Loan.
- Get it together. Debt consolidation is an effective tactic. Piedmont Advantage offers great rates on personal loans, home equity loans, and lines of credit. You can use money from those sources to pay off credit card balances, medical bills, and even school loans, bringing your debt under control.
- Beware of debt-relief companies. Many debt-relief companies can be scams. In November 2019, a student loan debt-relief scheme siphoned millions out of former students’ pockets, according to the Federal Trade Commission. Contact the North Carolina Attorney General’s Office or consumer protection department to vet out debt-relief companies before giving them your business. You can also reach out to your partners at Piedmont Advantage Credit Union for help consolidating loans and paying off debt.
Developing a smart strategy to pay down your debt and consolidate loans will help you get a handle on your finances. Piedmont Advantage provides a variety of resources to help members in North Carolina understand their options and improve their overall financial health. Contact us today to learn more about how we can help you manage your debt.