Americans Are Dumping Debt: Smart Ways You Can, Too
Posted by BillShrink on August 2, 2010 in Dump Your Debt
Managing your money can be a lot like managing a relationship, and debt is like a bad relationship you don’t want to be in but can’t seem to find your way out of. We asked our friends at BillShrink to offer their advice for dumping debt and getting on with finding a healthy relationship with money. Breaking up with debt will feel so good you won’t even need the ice cream!
There is a great trend underway: more and more Americans are living within their means and getting their budgets back on track. Over at BillShrink, the free personalized search engine that compares millions of product options against an individual’s unique needs, we surveyed 220,000 people to ask if they paid off their credit card balance in full each month. Back in June 2009, only 43% of people said “Yes.” Now, a whopping 67% of people are paying it off! That’s an increase of 24% in just one year. We aren’t the only ones noticing this trend. The Federal Reserve has reported that the total credit card debt is down to $838 billion. This is down $28 billion since 2009.
Anyone who has ever been in debt knows that getting out is not easy, so how are all these people managing to whittle down their credit card debt? One of the biggest changes recently is that people are avoiding credit cards altogether and using debit cards more. Equifax reported that the number of new cards issued dropped by nearly half last year. Moreover, a MasterCard study found that credit card use was down 13% and debit card use was up 11% at the end of 2009.
Debit cards will give you all the convenience of a credit card, but limits spending to money that you actually have in the bank. We’re big fans of our friends here at PerkStreet, who offer a great debit card that earns you rewards without the debt. (PerkStreet: Aw, thanks!)
In addition to kicking the credit habit and getting cozier with your debit card, here are some more tips to help you join the two-thirds of Americans who made their way out of debt:
1. Pay more than the minimum.
Paying only the minimum is like treading water instead of swimming to the shore. Examine your budget, make a small sacrifice here and there, and pay a little extra each month. This will help save you hundreds, and maybe even thousands of dollars, on your interest payments.
2. Stop acquiring new debt.
Cut up those credit cards. This seems obvious, but to stop adding to your debt is the first important step on your way to financial freedom.
3. Consolidate your debt.
Transfer your balance to a low-interest credit card. It’s much easier to keep track your debt and to set pay-off goals against one outstanding balance amount.
4. Eliminate some of your spending.
Can you cut your home phone and just use your cell? How about making coffee at home? Give up eating out for lunch?
5.Empty your bank accounts.
Credit card rates are far higher than savings interest rates. Pay down your debt and when it’s gone, go back to building up your savings account.
6. Get a loan off of your 401K.
Most of us are reticent to tinker with our retirement money, but like the above tip, you are wise to get out from under high interest card payments. Then, once you pay off your debt, you can establish a long-term plan to replenish your retirement account.
7. Pay more often.
Pay your credit card bill every two weeks instead of when it’s due. Because not all months have 4 weeks, you end up making extra payments during the year, and therefore end up paying off your debt faster. (PerkStreet: if you get paid bi-weekly, you can set up an automatic bill pay for your paydays. The less time the money spends in your account the less you’ll be tempted to spend it on cheeseburgers instead of bills.)
8. Negotiate with your creditors.
Call your credit card company and ask if there is a better interest rate available. Be polite and tell them that you’d like to continue to be a client, but that you’ve seen lower interest rates on the market.
9. Last resort: File for bankruptcy.
If you are so under water that you can’t make your way out, bankruptcy is a drastic, but sometimes necessary decision. Before doing this, tell your creditors that you are considering bankruptcy. They would rather work with you and continue getting payments rather than call it a total loss. If this effort fails and you’re in a desperate situation, bankruptcy can rid you of your debt. Prior to filing, make sure you understand the impact of your credit score plummeting and determine whether Chapter 7 or Chapter 13 is right for you.
What are your thoughts? Have you used any of these tips? What works for you?
