Americans love affair with revolving debt has resumed since the great recession; the Federal Reserve reported that most of this debt acquired has been from credit cards (CC), which hit the 1.027 Trillion mark in March of 2018. According to Experian credit, the average American now carries a total CC debt of $6,354. In the credit world, there are two types of borrowers, those that pay off their balances each month paying no interest, and the poor souls that carry revolving credit card balances month after month. They are paying between 13 and 25% on that debt. If you are late on a payment, you will be subject to an even higher penalty interest rate. Even worse, when you only make minimum payments, paying off your debt takes eight years and four months; assuming you don’t buy anything else with that card. Unfortunately, 38% of households today are carrying revolving debt on their CC, a 5 % increase in the last 3 years and those paying penalties are also trending up. Having high CC debt will also negatively affect your credit score. If you have racked up too much of this debt, there are some things you can do to solve this challenge:
- The first step is to stop increasing your debt. Consider making purchases with cash or your ATM card. That way you don’t charge more than you have in the bank to pay for it. Swiping a CC with a high available balance is all too easy and can get you in trouble. After making this change, if you don’t make enough money to cover your expenses, consult with your financial advisor about increasing your investment payouts, or consider getting a part-time retirement job. Once you get your cards paid off, get in the habit of only charging what you will pay off in full each month.
- If you need to purchase something and don’t have the money for it, then a CC can make sense over a short period. Paying for a car repair of $1,500 can be a necessity. If you are charged an 18% rate and repay it in 4 months, you would only have $57 in finance fees. But if you were to take two years, those costs would skyrocket to $300.
- If you can afford to make extra payments, do not pay all of your CCs equally. Focus those extra funds on paying off the cards with the highest interest rates first. This tactic will help you to eliminate your debt much faster than dividing your extra payments evenly to all of your CCs.
- You can contact your creditors and ask them to reduce your card’s interest rates so you can pay them off faster. The CC companies do not want you to default on your payments to them either, so sometimes they will work with you to find a reasonable solution.
- Perhaps you can negotiate to settle your CC debt for less than what you owe. Be wary of companies that offer to do this for you as they can charge high up-front costs and have no guarantee of actually getting results. You would have to be behind on your payments for them to consider settling and they would require a lump sum payment of the full negotiated balance. If you do make this arrangement, forgiven debt can be reported as taxable income and it also negatively affects your credit score.
- If you have equity in your home, refinancing to pay off CC debt can make a lot of sense. With credit card rates of up to 25% or more and average 30 year fixed rates around 5%, this could give you substantial savings and expedite your ability to pay down that debt.
- If you are retired, refinancing a home loan can be challenging. Perhaps a reverse mortgage can be the solution to paying off your CC debt. These fixed loan rates range between 4 and 6% and don’t involve the same income requirements as there are no monthly mortgage payments; which may ease your financial burden and might solve the problem that got you into CC debt (you would still be responsible for paying property taxes and insurance). You may qualify for more than enough to eliminate your monthly mortgage payments and CC debts leaving you extra money to save in the Line of Credit for a rainy day or you can choose to get a lump sum put into your bank account, or you can opt to receive a monthly check. If you would like more information on how a Reverse Mortgage may be able to help solve your CC debt, contact, Robert Snow Krepps, NMLS # 255191, at HighTechLending Inc at 877-567-7476 or firstname.lastname@example.orgHighTechLending Inc, NMLS # 7147, is an Equal Housing Lender. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act.