Do you have student loans? Car loans? Mortgages? Credit card debts? Are you having trouble paying off your debts? Are you stressed out by all the debts you have?
33% or 77 millions of American don’t pay their bills on time and 39% carry credit card debt from month to month.
We live in the wealthiest country in the world, but we always have money problems.
Having debts in your life is not fun. It’s fun at the moment when you make your purchase. It’s human nature to purchase for emotional reason, then try to justify our purchase with logic later.
Debt is like a tumor. If you don’t do anything to stop it and continue to feed it with more spending, it grows rapidly. Even if you leave it a lot, it continues to grow.
The magic of compound interest that works wonders for us growing our money also works wonders for the banks and lenders, when it’s their money, and we’re paying for it.
Debt becomes a way of life. Consumer debts is one of the biggest obstacles to achieving financial freedom and retiring rich.
It’s important to have a strategy to get rid of all your debts in life and start building a solid financial foundation.
Here’s the best debt consolidation strategy:
“What do you do when you find yourself in a hole? Stop digging!”
The very first thing to do is to set your mind to be debt-free, and stopping spending. Write “Want or Need?” in a piece of paper and put that piece of paper in your wallet. Every time you’re about to spend money, ask yourself if this is a need or want.
Buy only what you need.
2. Consolidate your credit card and consumer debts with a low interest line of credit
Revolving high-interest credit card debt is one of the worst types of debt because it can quickly grow into an unhealthy financial situation. Let’s look at an example of the true cost of using a credit card.
In the above scenario, you end up paying $6,173 in interest, which is $1,623.29 more than the original credit card balance. However, if you commit to paying slightly more each month, you can pay off the card’s balance in half the time and pay much less, only $2,574, in interest.
These examples show why it’s important to strive to pay off credit card and high-interest loan debt sooner rather than later.
• Itemize all your outstanding credit card debt or loans from the highest to the lowest interest rate, and list the monthly payments for each.
• Pay more than the minimum – as much as possible within your budget – on the credit card/loan with the highest interest rate. Once you pay off that credit card/loan, begin paying off the next highest interest rate credit card/loan.
• Consider transferring credit card/loan balances to a card with a low interest rate that is offering a promotional, no fee transfer option. Or, for an account that is charging more than 14 percent interest, call the credit issuer to ask for a lower rate, such as 11 percent.
There are many companies out there that offer debt consolidation loan. However, many of them still charge high interest.
A better option is a line of credit from your local banks or credit unions. Credit unions usually have more competitive rates and easier qualification requirements than bigger national banks.
If you qualify for a personal line of credit, you can use this line of credit, which acts like a credit card, to pay off your high interest-rate debt faster.
If you are a homeowner, you can also consider taking out a low-interest home equity line of credit to pay off your debt. Although the home equity line of credit is still debt, the interest accrued is usually tax-deductible. As always, check with your CPA to be sure.
Plus, you'll always have an emergency fund available.
A line of credit allows you to take out only what you need. You don’t have to take the full line of credit out like a loan.
Another benefit of a line of credit over conventional loan is the interest accumulation. In a conventional LOAN, such as mortgage, car loan, personal loans, interest is calculated by amortization. Your payment is the same every month for the duration of the loan, but you’ll be paying more interest in the beginning, which means you’ll pay off your loan slowly.
On the other hand, interest on any line of credit is calculated as simple interest, which means you only pay interest on just the portion of the loan that you borrow. And interest is calculated on a daily basis. So if you use your line of credit like your checking account - putting your income into the line to bring down the balance, you'll pay less interest. Because it is a line, you have to flexibility to use the credit each month, as long as responsibility is exercised.
A friend of mine paid off $8,000 debt in just one month with his $12,000 personal line of credit. He uses the money from the line of credit to pay off his outstanding personal loan, which is the $9,000. Then he just keep attacking his line of credit balance with his cash flow.
When he is putting his monthly income into the personal line of credit, that deposit is considered his payment, which is obviously greater that the minimal payment. So that helps to improve his credit score.
If you have a mortgage, try to pay it off as quickly as you can by paying additional principal each month. Don’t refinance, even if the rate is better.
When you refinance, you’ll repeat all the escrow, appraisal and closing costs. Besides, refinancing means you re-start your 30-year all over again, which means you’ll be paying mostly interest, which does not help you pay off your mortgage.
4. Make more money by starting a side gig or business
Now we have a few strategies in place, we need to look into making more money to help speed up your debt elimination process.
Think about it. You got into this position in the very beginning because you’re spending money that you don’t have. So it makes sense to find ways to make up this money and get yourself out of debt.
Being an uber driver is one of the easiest way to make money right away. You just need to have a functional 4-door car with all legal license, insurance and inspection, etc. Download the apps, register and you’re good to go. You get paid once a week. You can easily get $20 an hour taking people to their destinations and meeting new people.
You can also join the cause in revolutionizing the financial industry. You’ll earn while you learn financial concepts and help families like yours become financially independent. Pay is handsome.
Debt consolidation does not need to be complicated. It requires discipline and determination. Retire your credit cards and focus on making money.
Related article: How to Make Money Work for You