6 Steps to Eliminating Your Debt Painlessly

With this plan, you're going to end up paying a total of $27,000 on a debt of $16,000. If you just take out a personal loan for the entire amount, you can pay it off in 3 years instead of 5, and save yourself quite a bit of interest in the process.

I've read money management articles that have financial planners advising clients to pay off credit card balances using special rates. I would call these teaser rates, which sometimes they are, but there are also offers that are good until the balance is paid; with the caveat being if you are late on any loan (not just the one owed to the credit card company offering the great rate) then your rate can get switched to a higher rate, something like 32%. I get these offers quite a bit though I don't know if the person with mounds of credit card debt gets them. What is your take on using this approach to digging out of the credit card hole?

If you have debt, or would like to use credit for a "no interest loan", then I think balance transfers are great. Some of the offers even waive the transfer fee. Can't get better than that.

We've used this strategy before when there are large chunks of money we know are coming in within the next few months. For example if within a six week period we are expecting a large tax refund, the interest balance on a CD to come due and a large ticket item (like an old car) to sell, we've used this strategy even if we already have the necessary money in the bank to get maximum interest earned on our funds. If you know what date towards the end of the month your credit card company rolls your statement over, you can even get two statements before the funds are due rather than just one. Pretty slick for large ticket items that you'd rather be able to earn great short term CD rates on. This takes discipline, though.

Interesting post.

I'm just wondering your thoughts about services like Bud Hibbs. There are others like it too. They help you by supposedly getting the creditors to erase the debt. Too good to be true??? I hope not.

I was told by a creditor one time that the higher number of active credit accounts you have, the lower your credit score is. If you can pay off debts on some of your cards (ie: department stores) and are planning on cutting them up anyways, you should go ahead and cancel the account too, because if you don't it will continue to affect your score. Plus, until you cancel the account, you keep getting coupons, etc in the mail, which makes it easier to want to go out and spend money again.

The advice provided presents only a single alternative to eliminating debt of various types. There are a number of mechanisms to eliminate debt at a lower cost to the debtholder; however, the underlying question is how could one have avoided debt in the first place?

The credit cards do not force you to use them; rather, the owner makes a specific decision to live beyond their means (for those cardholders that carry balances on a frequent/consistent basis). It is true that the card issuer is partially at fault for providing the loan facility to someone who may not be able to handle incremental payments; however, that person made a choice to use the credit line - perhaps a poor decision in hindsight.

Assuming that an individual had a budget to begin with, the likelihood of hitting the easy-credit card drug would have been lower (since the level of fiscal responsibility is generally inversely related to the use of "bad unsecured debt" - unsecured debt accumulated beyond one's means to pay in a one year period).

On another subject, one suggestion that was mentioned was to destory a card that has been paid off (and by destroy it is unclear whether cancellation is implied - cancelling and destroying without cancelling are very different things).

Assuming the suggestion is to cancel the card (and then destroy the plastic), there could be very negative results represented in your credit score based on the number of credit cards you have and the total balances carried across those cards.

By cancelling a card, you are effectively reducing the total line you have access to, so the utilization of your lines (i.e., what % of your available credit are you actually using) will go up. At levels above 10-30% (depending on the lender's credit scoring criteria), there will be negative consequences on the score, despite the fact that the individual is actually getting out of debt.

By destroying a card alone, an individual is only delaying the ability to use the card again - some credit card lenders use a paid-down balance as a reason to reissue plastic, increase credit lines or make a promotional merchandise or transfer offer to the cardmember in order to create incremental value on a paid-off account (accounts that are not used cost the lender money).

I will add that the first thing to do is to get out of the *cycle of debt*, which is basically the cycle of spending beyond what you earn. To break this cycle, you need to bring your expenses below your income. This means making a budget and tracking your income and expenses and making sure that you keep your expenses below your income. This will mean some difficult behavioral changes, but once you have done this and have decided to stick with it you have broken the *cycle of debt*--you are now spending below your means.

Once you have done this, you are not out of the water yet because even though you are currently out of the *cycle of debt* it will take some time, perhaps years, to pay off your accrued debt balances. But you will notice an immediate improvement in the quality of your life once you are spending under your means.

A good practice I would recommend is to build up one month's worth of savings as a cushion, and only budget that money for your current expenses. In other words, only "spend" now what you earned last month. Put this month's income away for spending/budgeting in the coming month, and only spend/budget what you earned last month right now.

This also will make a huge difference. When you get to the point where you don't even need to make a bank deposit more than once a month because you're spending last month's income, your financial stress level will go down to a very very low level that you won't be used to. In fact, the low financial stress may create other problems--like what to do with your life and time now that you don't spend all your time worrying about the bills.

Now *THAT* is the kind of problem you *want* to have!

Ahead of investing any more of your time and effort in credit card debt elimination, you should consider if debt settlement is the right option for you. The first question you have to ask is "Do you have a legitimate financial hardship?"

Total Debt Elimination! Don't we, who are burdened by so much debt, all want that? Lolz

I was in that deep hole of debts for a good number of years. It wasn't easy, but I realize now that it had to happen. I needed the nightmares & restless moments that my financial woes gave me; otherwise, I wouldn't have learned my lesson. I wouldn't have changed and would have been stuck to being the materialistic person that I was before.

I'm more frugal now, more matured and wiser coming out of that experience. ;)

Eliminating debt is simple said than done especially if it involves a huge credit and interest rate. A wise move is to seek assistance from debt relief firms. They will be responsible for planning your payment scheme in a way that is easier for you to accomplish. They will also give you useful inputs which you could use to fight off debt.

Attacking the debt with the highest interest is the best thing possible to do! Though there are a ton of methods to solving debt and they have to be adapted to the individual. There are companies like this one that can help people solve their problems.

I like comment # 2. If people find out how much they can put aside towards the debt, they may have more success in getting the creditors paid off. Try to eliminate expenses (like premium channels on TV) that would help in freeing up money for the debts.