Getting out of credit card debt can be one of the biggest challenges when it comes to managing your personal finances. The average amount of credit card debt for a household in the United States is $6,270. Plus, because credit card debt is unsecured, credit card interest rates can be high.
With these facts in mind, it’s easy to see why reducing your credit card debt is one of the most important things you can do to help your finances. Read on for seven tips on how to get out of credit card debt.
Related: Should you pay off debt before buying a house?
1. Evaluate Your Finances
The first thing to do when you’re trying to figure out how to get rid of credit card debt is to take stock of your finances. You want to look at not just your credit card debt, but all other forms of debt you may owe, including student loans, car loans, personal loans, and home mortgages.
Be sure to review your credit card statements and pay close attention to interest rates on your debt. Also, take note of which loans are tax-deductible, such as a student loan or a home mortgage, and which are not. Unfortunately, credit card interest is never tax deductible. Having this knowledge about your debts can help you make more informed decisions about which debts to prioritize paying off.
2. Create a Budget With Priorities
One of the best ways to reduce credit card debt is to create a budget that prioritizes your financial goals. Many people will aim to pay off their loans with the highest interest rates first, but there are other payment strategies (more on these below) that can prioritize debt payoff differently. As you work to get out of credit card debt, you may also want to prioritize debt reduction over other purchases and discretionary spending in order to reduce credit card debt sooner. Whether your debt burden is above or below the average credit card debt, it can be worth the sacrifice now to avoid further financial pain later.
3. Have a Payment Strategy
When it comes to how to get rid of credit card debt, there are several debt reduction strategies available that approach debt payoff differently. Below, we’ll break down these common strategies:
- Snowball method
- Debt avalanche
- Blizzard method
- Automated payments
Snowball Method
With the debt snowball method, you pay off the smallest balance first, and then the next smallest debt. The primary benefit of this method is psychological, as you can gain a feeling of satisfaction from having one of your debts quickly erased. As the strategy’s name implies, taking this approach can help you build momentum towards paying off your larger debts and avoid getting discouraged as you’re starting out.
Debt Avalanche
The debt avalanche method is a popular payment strategy where you pay off your highest interest rate balances first, while making the minimum payment on the rest of your debts. As soon as your debt with the highest interest rate is paid off, you proceed to the debt with the next highest rate. While this strategy admittedly lacks some of the confidence-boosting effects of the snowball method, it allows you to save money on interest charges that can add up in the long term.
Blizzard Method
The blizzard method is best described as a cross between the debt snowball and debt avalanche methods. You start by paying off debt with the smallest balance first, like the snowball method. However, you pay debt with the highest interest rate balance next. With this method, you can start by gaining confidence and finish by reducing your interest charges as much as possible.
Automated Payments
Another great way to help reduce your credit card debt is to take advantage of automated payments, a key tool when it comes to how to use credit cards responsibly. Nearly every card issuer offers the ability to make bill payments automatically, and most allow you to configure automatic payments so you can cover your minimum balance, statement balance, or any amount in between. Setting up automated payments takes the hassle and stress out of making payments and ensures they’re on time, one of the things that affect your credit score. However, you have to make sure to have the funds available in your checking or savings account before the funds are automatically deducted.
4. Target One Debt at a Time
One effective way to pay off your credit card debt is to focus on a single debt, while still making at least the minimum payments on your others. You could make multiple payments each month, focusing all of your available funds on paying down and paying off this debt. This approach can help you feel like you’re making progress and reduce the number of debts weighing on you.
5. Pay More Than The Monthly Minimum
When you pay your credit card’s monthly minimum, you’re complying with the terms of the loan. However, by only paying the minimum amount due, you’re leaving a larger balance remaining to start racking up credit card interest. To reduce your credit card debt, it’s critical that you always pay more than your monthly minimum, one of many important credit card terms to know.
6. Consolidate Your Debt
Credit card consolidation is another method to reduce credit card debt, and it can have numerous benefits. First, you’ll have just one payment to make when you’re able to consolidate all your debts. This will make payment much less of a hassle, and it will also present a lower psychological burden every month as you won’t have a long list of debt payments to think about.
Plus, when you can consolidate your debt to a loan with a lower interest rate, you’ll save money on interest charges each month. Just keep in mind that you’ll still need a decent credit score to qualify — those with lower scores may be limited to top secured credit cards or credit building cards.
7. Get Professional Credit Counseling Services
Another option is to look for a credit counseling service that can offer advice on how to manage your credit card debt and pay it off. Non-profit credit counselors can help you choose from one of many possible solutions to determine the best way to reduce credit card debt for your situation. They can also let you know if credit card debt forgiveness options make sense for you. Counseling can take place in person, online, or over the phone. You may be able to find non-profit credit counseling services through a university, military base, credit union, or housing authority.
Explore Credit Card Options
If credit card debt is weighing on you, there are a number of options for how to get out of credit card debt that you can explore. The first steps to reduce credit card debt are to evaluate your finances and make a budget. From there, you can choose a debt payoff method that makes sense for you.
Regardless of whether you have credit card debt, you can benefit from a credit card with a lower interest rate. Browse different card options and see how their interest rates stack up and what credit score you may need to qualify.
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This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.
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What happens to your debt when you die?
Do you know what will happen to your debt when you die? Some debts are forgiven while others may be passed down to heirs. Read on for the answers to some of the most frequently asked questions related to death and debt.
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In order to accurately answer this question, we need to examine the most common types of debt people accumulate. In other words: Not all debt is equal. The type of debt you have and when you accumulated the debt will determine how and if your debt is passed on to others when you die.
The Most Common Types Of Debt
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If you die with credit card debt, there are two things that may happen:
- Your debt may be forgiven and written off by the credit card company
- The debt will be passed on and the responsibility of a survivor
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If you are the sole owner of the debt when you die, (not married or a cosigner) the credit card companies will be involved in the probate process. The money left in your estate, any retirement accounts, or other items worth money will be sold and the outstanding debts will be paid.
If there is not enough money in your estate to pay off the remaining credit card balance, your children or beneficiaries will not be required to pay the remaining balance. The outstanding debt will be “forgiven” by the credit card company.
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If the credit card is a joint account with a living spouse or a cosigner, the other account holder will be responsible for the debt. If you have authorized users on the account but they are not the account owner, the users will not be responsible for the debt.
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This is one of those myths that continues to live on. Credit card debt does not go away after seven years. The confusion with the seven-year time frame comes from the credit report time requirement.
After seven years, old debts begin to fall off of your credit report. Your debt, however, is still very much alive and owed. Lenders can and will continue to pursue the amount owed until it is paid, settled, or charged off. Do not be fooled into thinking your credit card debt will go away after seven years.
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The quick answer? It depends. There are several factors that determine if a deceased spouse’s credit card debt will be passed along to the surviving spouse. If the credit card debt was incurred before marriage and the deceased spouse was the sole owner of the account, in most cases, the debt will not be the responsibility of the surviving spouse.
If the credit card debt was incurred after marriage and the deceased spouse was the sole owner of the account, the state you live in determines the surviving spouse’s responsibility. If you live in one of these community property states and the debt was incurred after marriage, the surviving spouse is responsible for the credit card debt of their spouse regardless of the account ownership:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
If you do not live in one of these states, generally the surviving spouse will not be responsible for the credit card debt if they were not a joint owner of the account. If you are a joint owner on the account, you are now solely responsible for the debt.
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Again, where you live determines what can happen to your medical bills when you die. Generally speaking, children and heirs will not be required to pay back the outstanding medical bills of their parents. With that being said, there are a couple of instances where a child could be responsible for the medical debt of their parents.
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When a child cosigns admission paperwork acknowledging financial responsibility if the adult is unable to pay their bills, this debt may be passed down to the child.
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There are 26 states that have filial responsibility laws that state a child may be responsible for a deceased parent’s medical debt in certain situations. The states that have filial responsibility laws are:
- Alaska
- Kentucky
- New Jersey
- Tennessee
- Arkansas
- Louisiana
- North Carolina
- Utah
- Indiana
- Nevada
- California
- Maryland
- North Dakota
- Vermont
- Connecticut
- Massachusetts
- Ohio
- Virginia
- Iowa
- New Hampshire
- Delaware
- Mississippi
- Oregon
- West Virginia
- Georgia
- Montana
- Pennsylvania
- South Dakota
- Rhode Island
Now, before you become overly concerned about living in one of these states, understand that the enforcement of filial responsibility laws is extremely rare. If you have significant medical debt, consult with an attorney in your state to see exactly what responsibility your adult children may be required to pay back.
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Student loan debt may or may not be passed on to survivors when the borrower dies. What happens to the loan depends on what type of loan was taken out and when it was established.
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If you have federal student loans, they will be forgiven upon death. Federal student loans do not pass on to others as long as a death certificate is presented to the lender. Federal student loans that fall into this category are:
- Direct Subsidized Loans
- Direct Consolidation Loans
- Direct Unsubsidized Loans
- Federal Perkins Loans
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On Nov. 20, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was amended. The added section releases cosigners of a private student loan from financial responsibility if the primary borrower dies. Due to this, all new private student loans with cosigners are not required to repay the loan upon the student’s death.
However, student loans with cosigners taken out before Nov. 20, 2018, may still require the cosigner to be held responsible for the debt.
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Federal Direct PLUS Loans are also forgiven upon the student’s death. In the past, the parent who signed for the PLUS loan was required to bear the burden of the tax responsibility and file the forgiveness as “income” after a child’s death.
Currently, The Tax Cuts and Jobs Act of 2017, is in effect and releases parents from this tax responsibility. This tax stipulation remains in effect until the year 2025.
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There is several different scenarios involving vehicle loan debt upon the borrower’s death. If the auto loan has a cosigner or the vehicle was purchased in a community property state after a couple was married, the cosigner or spouse is responsible to repay the auto loan.
If the loan was obtained before marriage and is only in the deceased spouse’s name, generally the surviving spouse is not held responsible for the debt. The bank will take possession of the vehicle to settle the outstanding debt or the surviving spouse can pay off the vehicle loan.
If the borrower is not married, the survivors can either pay off the vehicle loan and keep the vehicle, sell the vehicle and pay off the loan or return the vehicle to the bank. Heirs do not inherit vehicle loan debt.
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Payday loan debt is very similar to credit card debt when you die. If there was not a cosigner or someone else listed as jointly responsible for the loan, then the company writes off the debt as a loss. Payday loan debt is not transferred to heirs but may be the responsibility of a surviving spouse if the debt was incurred after marriage in a community property state.
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In probate, the home must be paid off with the funds from the estate or the mortgage company must agree to let someone else inherit the loan. If you still owe money on your home, your spouse or heirs usually have three separate options:
Option 1: Sell the home to pay off the outstanding mortgage. The executor of the will can initiate a home sale to fulfill the outstanding debt obligations. If the home is not worth what is owed, additional money from the estate will be used to pay off the mortgage. If additional money is still required, the bank can take possession of the property.
Option 2: If there is enough money in your estate, your heirs can use that money to pay off the mortgage. Or the beneficiaries can use their own money to pay off the loan in full.
Option 3: If there is not enough money in the estate to pay off the loan, an heir may elect to contact the lender in an attempt to take over the loan. The loan would need to be transferred into the new borrower’s name which would require the heir to meet the credit obligations for a loan.
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Lenders can force the sale of a property to fulfill the outstanding equity loan balance if the estate does not have enough capital to pay it off. This is another scenario where the heir may be able to apply with the lender to take over the payments.
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If you have federal tax debt when you die, the IRS gets the first chance at your estate. Legally, the executor of the state is unable to pay any other debt or obligation until the federal tax debt is settled.
If a substantial amount is owed, the IRS will quickly put a lien on any property owned by the deceased in an attempt to satisfy the debt. The federal government will get their money one way or another – but the heirs will not personally be liable for the outstanding tax debt.
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There is not an automatic notification process when a person dies. The next of kin or executor of the state is required to contact the bank and provide a copy of the descendant’s death certificate.
When the death certificate is presented, the financial institution will freeze all of the associated accounts until the probate process is completed. If money is not owed to other lenders, the beneficiaries will be given access to any monies left in the deceased person’s accounts.
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Even though most debts will not be passed on to your heirs when you die, you may not want them to deal with the hassle of paying off all your debt with your estate – only to be left with nothing.
If you have struggled with debt your entire life, a cheap term life insurance policy may be an option to leave a small inheritance to your heirs. Most life insurance policies are dispersed tax-free and are not accessible to creditors.
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Leaving debt behind is a fear many seniors face. On the bright side, your heirs will usually not be personally responsible for paying off your outstanding debts. However, the sooner you can clean up your own financial mess, the better.
Do your best to start paying off your debt so your executor is not faced with a long probate process. If you need help getting started, check out this related post The Debt Payoff Playbook.
This article originally appeared on Arrest Your Debt and was syndicated by MediaFeed.org.
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