Kobliner.com | Get Out of Debt

So you owe money. Okay, it’s a lot of money.

Your lenders let you pay back your debt in tiny doses. Problem is, making tiny payments won’t make your debt disappear. One day you will wake up and you’ll be 73 years old and you’ll wonder why you’re still paying for a sweater you bought in college.

There has to be a better way, and there IS a better way.

Jason: "Between pseudo-emergency spending and racking up expenses my last semester in college, I've ended up with some pretty high credit card debt."

			First, take any money that you have in your savings account and use it to pay off high-rate credit card debt. This may feel like a “waste” of your savings. It’s not. Paying off debt that charges you a rate of 17%—the national average charged by credit card companies—is the equivalent of earning a guaranteed, tax-free rate of 17% on your money. (No other investment out there can guarantee that kind of return.)
			Always pay more than the minimum your credit card company requires you to send in every month. Paying just a few dollars extra every month can make a huge difference. Let’s say you’ve got $3,000 sitting on a credit card that charges you 17%. If you pay just the minimum every month, it will take you more than thirty years and over $6,000 in interest to pay off your debt. But if you sent in just $10 a month more than the minimum, you’d shave 20 years off your payment schedule and save $3,000 in interest.
			If you can’t pay off your debt in full, try to get a low-rate credit card. If you have a lousy credit rating, you may not be able to get a rate below 10%. But if you’re like most people, you can probably consolidate your debt and get a better deal than you currently have. My favorite sites for low-rate credit cards: www.bankrate.com; www.cardweb.com.
			If you have student loans and credit card debt, you may want to pay off your student loans more slowly—say, over 20 years instead of 10. That will reduce your monthly student loan payments. Then you can take the cash you save each month (yes, all of it) and use it to pay off those higher-rate credit cards. My favorite sites for handling student loans: www.usagroup.com; www.ed.gov/offices/OSFAP/DirectLoan/index.html
			If you're having real trouble making payments on your debts, you may need help. Here are a couple of options. Borrowing from friends and relatives. People who are close to you may be willing to lend you money to pay off your debts, but keep in mind that when you borrow from friends and family, you put your relationships on the line, not your credit rating. Offer to pay them back with interest, and, even if they refuse, be sure to establish a clear payment plan, preferably in writing. If you stick to it, it will work out well for everyone. Negotiating with your lenders. If you haven't already, contact your lenders and explain your situation. They may be willing to arrange a payment plan to suit your needs. If this doesn't work, a credit counseling service might be able to help you negotiate a better payment schedule or even reduce your interest rate. Consumer Credit Counseling Service (800-388-2227) is a nonprofit organization that offers free budget advice and inexpensive debt management service and may be available even if you can't pay at all. Also try Debt Counselors of America (800-680-3328) for debt advice. To find out what you should do with your money now that you're getting out of debt, go to Start Saving.

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