Eight out of every ten Americans have some form of debt. In 2018, American household debt continues to climb higher hitting $13.1 trillion according to the Federal Reserve Bank of New York.
As we continue to see a rise in all categories of debt including credit card and student loan debt, many Americans are now looking for ways to get their debt under control other than ways of cutting back their spending habits.
It can easily become overwhelming when dealing with thousands of dollars in student loans and credit card debts. However, there are some great simple tips that can get you started on the road to financial freedom sooner rather than later.
#1 Ignore the Stereotype About Refinancing and Consolidation
Many individuals are warned against refinancing or consolidating their debt by getting a personal loan. However, you do not need to be afraid of these options.
Using a personal loan to refinance or consolidate debt can actually be a great route to not only keeping track and paying on time, but also save you some money in finance charges.
Wondering how it does that? Well most credit cards carry APRs of up to 19 percent, a heavy percentage of your outstanding balance added each month. In addition if you have a private student loan or previous payday loans, chances are that they carry pretty high interest rates as well.
Often, if you take the time to research you can get a personal loan with a much lower interest rate than all of the individual finance charges you are paying each month.
Bonus tip: if you have had some missed payments or bad debts in your credit history, there are companies that specifically offer personal loans to help rebuild your credit. So your credit record and score is improved and you end up saving hundreds each year in interest charges.
What this means is that your monthly payments is not wholly consumed by interest and more of it actually goes towards repaying the principal amount.
#2 Use A Credit Card- Wisely
In 2017, 7.55 percent of credit cards in America were in the delinquency stage- 90 days or past due. However, the use of revolving credit specifically credit cards should not be feared.
Many credit cards offer balance transfer promotions, extending up to 36 months. These are great terms to take advantage of because you incur no further interest. Transferring debts onto a credit card with a balance transfer promotion removes the interest you would be paying monthly.
Therefore your monthly payments would go much further towards paying off your initial principal amount.
However, use your card wisely by only transferring amounts you can pay within the terms or you will have come full circle and begin accruing interest again.
This is where having a plan becomes quite useful.A general rule to go by is to keep your utilization below 30 percent. Your credit utilization refers to your credit limit granted.
Many individuals are often under the illusion that their utilization rate has no effect on their credit history. In fact, your utilization score can account forup to 30 percent of your credit score.
#3 Do Your Research & Make a Plan
Finally, take the time to do your research. If you are considering refinancing, check out the lenders and their offered terms. Make use of the multiple comparison tools online to get yourself the best loan for your situation.
If you have credit card debts, take a minute to reread your credit card terms and know your rights especially regarding interest rate rises.
For student loans, take the time to speak to your financial adviser at college. Many students are placed on the standard repayment plan when applying for a federal loan. However, there are other options that may be better suited to your circumstances including an income driven repayment plan and other plans.
It is also a great idea to have a plan. It takes a little amount of time but can serve multiple uses. When drawing up a plan, decide what debts you will tackle first.
Some prefer to pay off those with the highest interest charges first. In the case of using a balance transfer these would be the ones to get transferred. Get into the habit of budgeting to keep track of your expenses and save any extra cash where you can.
A bill payment calendar on your smartphone can also help you with keeping track of your payment dates and avoid any late payments.
It can take some time to see your debt shifting but with these simple and easy tips, you can get keep your debt under control.With a little time and dedication, you can be well on your way to financial freedom starting today.