Debt is the term for money that you owe to a creditor. A creditor is a person or institution that has loaned money to you. Typically, people acquire debt by taking out loans for their homes, called mortgages. It’s also common to take out a loan for buying a car called an auto loan. Wondering how to get out of credit card debt? You are at the right place! All you need to do is go ahead and read it!
If you’re one of the 170 million Americans with a credit card, you’re acquiring debt each time that you use that card. That’s because the money that you charge is loaned to you by the bank or credit card company. There’s also IRS tax debt (we will cover all of this later).
The rate at which overall debt is increasing in America has many people concerned. Look at these recent statistics:
- U.S. consumer credit card debt exceeded $800 billion in 2018
- Student loan debt in the U.S. is over $1.5 trillion. (Yes, that’s trillion with at!)
- Over 108 million Americans have an auto loan. Total auto loans exceed $1.2 trillion.
- In 2018, the IRS reported that over 14 million people had open cases against them for tax delinquency
If you fall into any of the above categories, don’t worry—all hope is not lost. This post will cover everything you need to know about Credit Card Debt so that you can make the right decisions for your financial situation. We will help with some tips on how to payoff help for Credit Card Debt.
First, let’s inspect the different debt that you might have.
Credit Card Debt
Using credit cards is an all-too-common way to rack up high-interest debt. This is because It’s easy to build up a large credit card bill that you can’t pay back because of unforeseen circumstances—and this is how credit card companies make all of their money.
Let’s say you’re short on cash this month because of an unexpected car repair. You don’t have any money in your checking account, so you pay for your groceries, gas, cable, cell phone, and electric bills to your card. You had a small outstanding balance from last month, so your bill is now over $1,500.
Then, out of nowhere, you get a horrible tooth pain and find out that you need to spend $1,000 on an emergency root canal. Thankfully, your dentist accepts credit cards, so you can pay for the service. However, your credit card bill is now over $2,500, and payday is still two weeks away.
Making matters worse, you’ve already allocated your upcoming paycheck to cover your rent and car payments. The cycle continues this way for a few months and by the end of the year, your balance is up to $10,000 (putting you on par with the average American credit card holder).
Your new $10,000 balance most likely carries a high-interest rate, called an APR. The average credit card APR in the U.S. is around 21.4%, meaning that if you have $10,000 in credit card debt, with a 21.4% APR, you’ll get charged over $2,000 each year in interest fees.
If you owe $20,000 that number jumps up to over $4,000 each year. With that in mind, it’s easy to see why credit card companies are so eager for you to sign up; credit card debt is an insanely profitable business.
How to Get Out of Credit Card Debt
National Resource Connect recommends taking the following steps to pay off your credit card balances:
Stop using your credit cards to get rid of Credit Card Debt.
The only way to pay off your credit cards is to first stop using them. There’s no way around this. Put your cards away, or shred them up if you have to.
Pay off more than the minimum payment.
The quickest way to pay down your credit card balance is to pay off much and quickly. If your minimum payment is only $50, pay $350 (if you can afford to).
Cut back on spending- Credit Card Debt Free life
To pay off a high credit card bill, you must be honest with yourself and willing to make some sacrifices. For example, it is not a good time to take that vacation until your credit card is paid off. (Most likely, you will increase your credit card debt on that vacation.) You might also consider holding off on unnecessary purchases—like buying a new TV or car—until your credit cards are paid off.
Take out a personal loan.
If you’ve exhausted the above options and still can’t make more than the minimum payments, it might be time to consider taking out a personal loan (if you qualify for a lower interest rate than your credit company charges).
For example, if you qualify for a personal loan at a 10% APR, you could save thousands of dollars per year in interest fees, compared to paying over 20% APR with a credit card company.
Signing up for a personal loan is super easy and takes just a few minutes. Check out this neat tool to see how much money you can get today. Don’t forget that you still must pay back your loan, so make sure you’re careful with your spending if you take this route.
Transfer your balance to a 0% APR card.
One of the main reasons that it’s so hard to pay off credit card debt is because the money you owe is constantly increasing because of high APRs.
Transfer your high-interest credit card balance to a card that offers a 0% introductory APR will make it easier to pay off your loan because you’ll get charged much less interest. This saves big money in the long run. To see which low-or-no-fee credit cards you might qualify for, go here.
Auto Loan Debt
If you want to buy a car but don’t have enough money saved up to purchase cash, you might take out an auto loan. Typically, auto loans are offered through financing departments at car dealerships or directly with your bank.
Auto loans are a relatively safe form of debt because you’ll usually pay a reasonably low-interest rate and your payments can be spread out according to your budget. For example, if you want to have low monthly payments, you can opt for a 48 or 60-month term. Many car manufacturers offer low-interest rates on new cars, while financing rates from traditional lenders range is 4.21% on a 60-month loan.
How to Get an Auto Loan
If you’re in the market for a car and might need a loan, here are some steps you can follow:
1. Check Your Credit Score. The first thing you should do is check your credit score because your credit score determines what your interest rate will be. This helps you factor in how much money you might need for a down payment, and what your monthly payments might look like. What’s more, if you have poor credit, you might not qualify for a loan in the first place.
Several services offer free credit scores, like Credit Karma, and the government-backed Annual Credit Score. If you find that your credit score is less-than-ideal (under 630 points), you might take some steps toward improving your credit score before applying for a loan.
2. Contact Your Bank. Most major national banks offer auto financing, so that’s an easy way to get a free quote. If your bank doesn’t offer auto financing directly, they’ll likely have advice for you on where to go.
3. Get a Quote Online. These days, there are tons of online auto financing options that you can sign up for right from home. For example, with National Resource Connect Auto Loans, you can get a free auto loan quote in just three minutes. Just enter a few personal details to get started.
Mortgages are known as “good debt” because each payment you make to your lender brings you one step closer to owning your own home. So instead of writing a rent check that goes to your landlord, each monthly mortgage payment adds to your equity.
If you’re interested in signing up for a mortgage, check with your local bank to see if they offer home financing (most do). There are also many popular online lenders, like Quicken Loans Rocket Mortgage.
If you’re already a homeowner and want to free up some extra cash, you might consider getting a reverse mortgage. A reverse mortgage is a mortgage loan that uses the equity you already have on your home as collateral.
IRS Tax Debt
Millions of Americans have tax debt, so they owe money to the IRS. This is not a situation you want for yourself. But surprisingly, it’s an easy trap to fall into. Here’s how it works.
When you file your taxes each year, it’s your responsibility to ensure that you’ve paid the correct amount of taxes to the IRS. If you paid less, the IRS expects you to pay back that money to them. Let’s say you miscalculated the amount of taxes you owe over the past several years by $10,000. Once the IRS figures that out, they will require you to pay it back immediately. They’ll also tack on hefty interest fees. In that light, it’s easy to see how quickly tax debt can pile up.
If you’re one of the unlucky ones that owe the IRS money, don’t panic. Many resources exist that can help you get things back on track. As a National Resource Connect subscriber, you might even qualify for a free consultation with one of our partners. Go here to learn more.
Frequently Asked Questions About Debt
Next, let’s answer some common questions that you might have about debt.
Is Debt Bad?
Some debt is good, and some debt is bad. Generally speaking, mortgage debt is good, while credit card debt, tax debt, and auto loan debt are considered being riskier. Of thumb, the less debt you have, the better off you are.
How Do I Get Out of Debt or Credit Card Debt ?
The first step is to set a budget and figure out where your money is going. If you’re building up debt, that means you’re spending more than you’re earning, and that’s not good.
YNAB (You Need a Budget) is a helpful budgeting tool that makes it easy to see how much money is coming in and where you’re spending it. For example, you might find that you are spending too much money on groceries and at department stores.
As mentioned earlier, if you have credit card debt, you can consider transferring your balance to a low-or-no APR account. You could also sign up for a personal loan to pay off your high-interest credit card balance.
What Debt Companies Are Good?
Large banks like Chase and Bank of America and established auto lenders like Ally Bank and Wells Fargo are good because they offer transparency about fees and decent customer service. Quicken Loans Rocket Mortgage is also a good mortgage broker. When it comes to paying off the credit card and tax debt, National Resource Connect is a solid option.
How to Live Debt Free
Let’s face it: Most of us will never be completely debt-free, and that’s perfectly OK. As long as you’re spending your money responsibly and making payments on time, you shouldn’t have any issues.
If you stress out over the amount of debt you have, you’ve come to the right place. It doesn’t matter what type of debt you have or how much you owe. National Resource Connect’s partners are standing by to help. By educating yourself on how to get out and stay out of debt, you’ll be better prepared for the future. Here’s to a debt-free future.
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