Unity One Credit Union

Unity One CU Informs: Four Ways to Control Your Debt

Wed, Nov 15, 2017 @ 09:00 AM / by Unity One

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American consumer debt has rebounded to pre-recession levels, and the category that includes credit cards hit a record $1.02 trillion in 2017. Maybe you have seen your credit card debt creep up too.

It makes sense to pay particular attention to the balances accumulating on your credit cards, because interest rates are typically higher than other types of debt. Carrying balances can be costlier and derail other financial goals.

Here are four different ways to help get your debt under control: 

  1. Figure out your starting point

First, take stock by:

  • Making a list of all your credit card balances. Note the interest rate and minimum payment for each.
  • Then, compare the debt to your income. Add up your total credit card debt and divide it by your annual income. For example, if you owe $5,000 on your cards and make $50,000 a year, your credit card debt is 10% of your income.
  • Determine what you can pay monthly. See if you can pay extra on top of your minimums.

The path you pick from here depends on your debt level and whether you can pay more than the minimums.

  1. When to try DIY

If your credit card debt is under 15% of your income and you can pay more than the minimums, take a do-it-yourself approach.

There are two common methods to pay off credit card debt fast. They are:

  • Debt Avalanche:Arrange debts by interest rate and pay off in order from highest to lowest. Keeping your focus on the most-expensive debt saves money on interest.
  • Debt Snowball:Arrange debts by balance and pay them off from smallest to largest. This can give you some quick victories to build momentum toward tackling bigger debts later.

With either method, put all of your excess discretionary income into your payment money, while keeping the remainder of your income paying the minimums required on any other cards.

  1. When to consider debt relief

You may need to seek relief if you’re having difficulty paying credit card minimum payments, or credit card debt has exceeded 15% of your income.

You can choose from three common options:

  • Debt consolidation. Several debts can be rolled into one loan payment at a lower interest rate. This can be done by getting a personal loan at Unity One or using a no-fee balance transfer option on another credit card.
  • Debt management plan. Work with representatives at the credit union to set up a structured repayment plan over three to five years. The credit union can help you evaluate all options to create a manageable plan for your household.
  • Debt settlement. Typically, a debt settlement company diverts your payments to an escrow account. As late payments mount, your creditors may agree to accept less than the amount owed. But damage to your credit is substantial, and exploring bankruptcy may make more sense.

 

  1. When bankruptcy may be best

A credit card debt of over 50% of your income might be difficult to pay back, even with extreme budget cuts. Struggling under so much debt can endanger basic financial needs such as saving even a little for an emergency fund.

Resolving debt through bankruptcy can provide a clean financial slate. The filing will stay on your credit report for seven to 10 years, depending on whether you file Chapter 7 or Chapter 13

Filing bankruptcy is a serious matter with many consequences to consider. If you think that bankruptcy may be the only solution, make sure to consult a qualified financial representative first to devise the best plan.

 

Unity One

Written by Unity One

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