Credit cards are perhaps the most stealth enemies of finances ever created. Think about it….you pull out a piece of nondescript plastic whenever you make a purchase that almost feels like you’re playing with funny money.
But then there’s nothing so funny at the end of the month when the statement comes and all those transactions have piled up. Therein lies the next sneaky credit card feature: the minimum balance. Ok, so you can’t pay the full multi-thousand dollar balance in one lump sum, but if you choose the minimum balance option the exorbitant interest fees will accumulate like a snowball running down the steepest ski slope.
Before you know it, the interest owed is actually more than the sum of the actual purchases. Now you’re suddenly deep in credit card debt with seemingly no quick or easy way out.
This year, credit card debt has hit an all-time high of nearly $1 trillion owed by Americans according to the Federal Reserve. Most alarmingly, the average age of those with wildly overdue payments or facing the threat of a debt collection scenario is skewing much younger than ever before. Thus, young people are starting to ruin their credit and face and uphill financial battle that could last the rest of their lives.
“Many young people are poorly educated about the pitfalls and lasting negative impacts of large credit card debt accumulated early in their lives,” explains Chantel Grant, Senior Partner of the GM Law Firm with decades of experience in fighting credit card debt. “Beyond just struggling to pay off the debt, if it gets too far out of control, the young person can be thrown into collections or, worse, face a debt lawsuit.”
Creative Ways To Start Paying Down Debt Today To Prevent a Debt Lawsuit Tomorrow
There are many keys to paying off debt. First, don’t ever ignore the debt and think it will just be forgotten about and go away. It won’t.
Second, take a step back and don’t look at the debt as Mt. Everest to be climbed in one day. Think of the debt as little hills to be submitted easily each day which will eventually amount to the conquering of the larger peak. You have to walk before you can run. The goal is to avoid harassing debt collectors down the road by starting to chip away at the debt as soon as you recognize that it’s tumbling out of your control.
Saving money has never been more necessary, especially now during the COVID-19 pandemic. Now’s the time to lower expenses and increase income. Here are some tips how:
1 – Make more money
Ok, easier said than done, but not unthinkable. If you haven’t had a wage increase in some time, now would be a good time to ask the boss for a performance review and a moderate money boost.
Even if you did recently receive a bump, some employers will negotiate what would be an additional increase for the next calendar year early for what would be less than you would get if you had waited. The trade-off is still greater cash infusion today to get that debt paid down quicker.
Now might also be a good time to consider a second job to infuse your bank account. You can pick up some extra hours after your regular work day driving for any of a variety of packages or food delivery services to earn extra money like Amazon, Grubhub, Doordash, Ubereats, Postmates and many more.
You can also sell some of your unused or long-since stored away things on ebay, Craigslist or even stage an old-fashioned brick-and-mortar garage sale. Every extra dollar earned counts.
2 – Create a debt payment slush fund from now unnecessary purchases
Think of the things you used to buy on a whim before debt reared its ugly head. Things like a round of drinks at the local watering hole on a Friday night. A pack of cigarettes. A grande instead of just a tall sized Starbucks coffee.
If you can eliminate some of those expenses, keep a log of what you saved every week. For example, if you quit smoking three packs a week, mark $30 on the ledger for that week. If you didn’t stop at the bar on Friday, jot down $50. And if you downsized your coffee purchase and maybe even cut out a couple days a week, log $15.
Suddenly, you’ve just saved $95 for the week on those items alone. There’s certainly many more. Now, at the end of the month apply what you would have spent, but instead saved toward the payoff of the loan. Afterall, you now legitimately have that money available.
3 – Eliminate superfluous expenses
It may sound easy, but now is the time to ask yourself before any purchase if this one is truly necessary. Food, obviously, is necessary, but where can you cut corners. Certainly limiting dining out will trim your budget (and probably your waistline too!). In the market, comparing policies and maybe selecting generic brands rather than name brands on certain items like bathroom tissue or soda will start adding up the savings.
“It’s about thinking of your money as a weapon to fight back against your rising credit card debt,” advises GM Law Firm’s Senior Partner Chantel Grant, an industry expert in understanding debt and every individual’s rights. “Every dollar saved is a dollar earned to be used to fight back against the debt, so that debt collectors don’t suddenly come knocking on your door.”
4 – Establish a plan of action and decide which credit cards to pay off and in what order
Take a look at the actual balance of each card you owe. Now compare that balance to each card’s interest rate to determine which card has the potential to escalate faster with increased interest. In some cases it might be worthwhile to create a plan where you allocate a monthly budget to the total crest card debt, then parse a percentage of that budget to each card based on its balance. Thus you can attack the debt of multiple cards on several fronts, bringing down the balance of all outstanding cards a little bit each month.
Psychologically, some people prefer attacking the card with the smallest balance first. There’s a sense of achievement when zeroing out a card – any card – just to feel like you’re on your way to debt elimination.
For other people, it’s easier to focus on the one credit card with the highest balance first or highest interest rate first. Then after knocking out that crad’s debt, move on to the next card and so on. The key during this time is to not continue accruing debt on the other cards.
There are also several helpful debt management apps like Qoins and Tally that can help guide you to a faster, easier payoff. Some simply provide good debt advice while others actively and seamlessly help pay down debt by “rounding up” on purchases and applying those add-ons toward your debt account to pay it down. Again, literally every penny helps.
5 – Try to negotiate a lower interest rate with the credit card company
It cannot hurt to call your credit card companies, outline your financial situation and try to talk them into a lower interest rate. A good negotiating tactic is to threaten to close your account and move your business to a competitor who has advertised a lower rate you want your company to match. Do your homework before the call and have a specific example and name of that competitor with their current rate handy for leverage.
6 – Transfer high interest rate credit card balances
In some cases, you may be able to transfer your existing balance to a different credit card that has a 0% interest rate as a promotion. This may allow you to save money on the interest rate while, of course, you’ll still have to pay the balance owed.
Always read the fine print, as there could be fees to make this transfer that would minimize or even negate the savings on the rate. Again, make sure you have discovered a certain credit card spending discipline when making these kinds of moves. Don’t fool yourself into thinking that just because you’ve found a better card for your current situation doesn’t mean that your former days of frivolous spending are back in play. They’re not if you want to dig out of this deep debt hole.
7 – Don’t simply cancel your credit card account
Canceling your credit cards can negatively impact your credit score even more than the debt you’ve already found yourself immersed in.
8 – Perhaps seek credit card debt counseling to help with debt resolution
There are many shady, often fraudulent agencies posing as consumer advocates but who are nothing more than quick-money grabbers. These supposed debt consolidation agencies claim they’ll negotiate a debt settlement on your behalf, but often you’ll end up paying more than what was owed when the consumer company’s fees and even incentives are factored in.
You can speak with a financial advisor (or your accountant, if you have one) and perhaps get some basic budgetary advice.
Your best bet when debt gets extremely deep and the collection agency lurks around the corner with the potential for a debt lawsuit is to seek out legal counsel with a successful history in fighting for consumer rights. Initial consultations are often free and these dbt specialists can show you where the path may be headed and advise you how to prevent the ultimate financial hardship in the form of a debt lawsuit.
9 – Track your purchases
Keep a very close eye on what you’re spending at this point. Be aware of inconsequential recurring fees on products that you might otherwise notice like auto-recurring subscriptions to things like satellite radio services or herbal supplements.
Look at your statement daily and if you see something you either don’t recognize or forgot you had purchased, call your bank or card company and dispute to dismiss and cancel so the recurring ceases.
10- Keep a proud eye of you debt reduction progress
Establish and maintain a physical chart to be displayed proudly somewhere in your house that shows the beginning debt balance and the amounts being whittled away with each passing month.
Like stepping on a scale every week during a diet, this will give you visual proof and self-congratulatory feedback that you are, in fact, making progress. The overall debt number may still be intimidating, but again, it’s a marathon and not a sprint. Every little bit helps each month to bring that bigger number down.
Before you know it, you’ll be out of debt with the notion of a potential debt lawsuit, a nightmare in the past that, if you’ve learned anything from the frightening experience, you’ll protect against ever happening again.