If You Are Buried Under a Mountain of Debt

If you are maxed out on your credit cards, it can feel like you’ll never get free. You’ve heard it said before that if you only make minimum payments on your credit cards, it will take decades to pay them off. So, if you are buried under a mountain of debt, how do you dig your way out? There are practical steps and many proven strategies for getting out of debt that you can take on your own, such as the snowball method. Also, there are organizations that can help you get out of debt. Your local bank can also help you. Each has its advantages and disadvantages. But the important thing is to take the first steps necessary to get out from under that mountain.

The Snowball Method
If you are determined and can scrape up a little extra money, you can use the snowball method to pay off your credit card debts. First, come up with $100 a month. This may sound like a lot of money, but really, it’s only a little more than $3.00 a day! There are many ways you can do this, such as cancelling your internet or downgrading your cable service. If your cell phone contract is about to expire, don’t renew it and use that money. If you absolutely need a cell phone, use a less expensive prepaid plan.

After you have come up with that money, apply it to your smallest debt. If the minimum payment on your smallest debt is $20, you would pay $120. In the meantime, continue to make the minimum payments on your other debts. Before you realize it, that small debt will be paid off. Then, take the $120 you were putting on your smallest debt, and add that to the minimum payment you are making on your second smallest debt. So, if the payment on your next debt is $40 per month, you would start paying $160 per month. With each consecutive debt you tackle, the payment you make gets progressively larger. Before you realize it, you are out of debt.

The advantage to this method is that it won’t hurt your credit. You also have a tremendous feeling of satisfaction that you did it on your own. The disadvantage is that you need to have the discipline not to accumulate any more debt during this time or it won’t work. You might also have trouble making this work if you are already behind on your payments or if you have so many payments it is impossible for you to come up with any extra money to start the snowball effect.

Getting Help from an Organization
There are some very good organizations and consumer credit counseling services that will negotiate with your creditors to reduce your interest and help you pay off your debts faster. These companies will help you set up a budget. You usually send them one check, and they then make the payments to your creditors on your behalf. This can be a good option for you if you are beginning to get behind on your payments or if you have so much debt you need help.

The advantages for this option are that if you use a reputable organization, they can give you a lot of help in negotiating with your creditors. The disadvantage is that there will be a hit to your credit score. Another disadvantage is that there are a lot of scams regarding this type of assistance. If you don’t do your homework and end-up putting your trust and money in the wrong hands your debt problems could get worse.

Using Your Local Bank
Your local bank wants to help you stay financially healthy and might be able to help you with your credit problems. If you are a home owner, you can get a second mortgage or an equity line of credit at a much lower interest rate than you are paying on your credit cards. As a result, you can pay off your debt a lot faster with a smaller monthly payment.

The advantage to this method is that you can pay off your debts much faster. Also, this will probably not hurt your credit score. In fact, it will improve after all your debts are paid off. However, the disadvantage is that you are reducing the amount of equity you have in your home. Over the past decade many people in the United States got upside down on their home loans from doing this. However, if you act responsibly and do not acquire any new debts while you are paying off your second mortgage or equity line of credit, this might be a very good option for you.

The Bottom Line
However you go about it, it’s crucial for your financial health to pay off your credit card debt. If you are buried under a mountain of debt, you’ll never be free until you start digging. With a strategy in place and a plan you can stick to, you can successfully dig yourself out from under your debt one shovel-full at a time!

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