If you have many credit card debt, you may feel trapped. Quit borrowing is necessary, but there are correct and incorrect ways of doing so. Unfortunately, those that are proposed as rapid solutions often cause more problems than they solve.
Here are four “solutions” normal, though unfortunate, to get out of debt with credit cards:
1. Withdraw a cash advance with another card
With this solution the first thing that comes to mind is the phrase “robbing Peter to pay John.” To start, get a cash advance with a credit card is a very expensive proposal. Normally charged a fee of three percent for each payment and high interest rates that begin to run from the moment when money is withdrawn. “The cash advances are an expensive form of credit and high risk,” explains Harrine Freeman, author, speaker, columnist and CEO of Freeman Enterprises, a credit repair service and financial advice. “The cost of a cash advance with credit card can be 500 percent or more.” Do not dig a hole to fill another.
2. To request an advance on your next payroll
The “payday lenders” offer a solution to emergency situations in the short term, but not recommended as a remedy for long-term debt with credit cards. When calculated annually, the interest rate on this type of loan is astronomical. Freeman acknowledged that quick loans have their advantages: they offer the possibility of extending the time limits, no credit checks and bad checks are avoided or fines for late payments. But the benefits go up there. “You will have to repay the loan plus the applicable charges, and whether lengthening the term of the loan could be double or triple the rates charged,” says Freeman. “In addition, the interest rate can be up to one hundred percent or more on the amount borrowed and will be owed more money than when he took the loan.” Thisdoes not include the charges of credit card payment processing.
3. Withdraw funds from your pension plan 401 (k) or other retirement savings
Not a good idea, because every time you withdraw money from retirement savings associated tax benefits, it penalized twice. First, pass through the pain of having to pay a ten percent penalty for withdrawing funds before the time allowed, then you retain taxes on the amount withdrawn according to the annual rate of income tax as appropriate. For most consumers this means that only left with 65 percent of the money withdrawn. Freeman acknowledges that borrow money from the pension plan 401 (k) has some advantages, including a low interest rate and the fact that they pay interest to itself, rather than a lender. However, the disadvantages are devastating. “If you can not repay the loan on time, will also have to pay taxes and penalties on the amount borrowed, and also have to repay the loan in five years,” says Freeman. “If you lose your job, or waiver, you must pay the entire loan. When withdrawing funds from pension plan 401 (k), takes money that could generate additional returns for their retirement plan and affects, in general, its projected income .
4. Apply a second mortgage and cancel all debts
Okay, this option is not as horrible If you have some financial discipline and are willing to risk their home. There are some advantages such as lower interest rates and the ability to deduct interest payments. Moreover, second mortgages (loans acquired on the value of housing) are faster than mortgage loans, but are not the panacea of indebtedness. They often do not inform you of many costs, including the commission for granting the loan, until you have already begun the application process. Remember: your home is at risk. Too many borrowers seeking a second mortgage and then borrow more with credit cards, being in a worse situation than they were. Freeman said that the second mortgage should be a last resort. “Do not seek a second mortgage if your credit is bad, if you can not make payments on your current mortgage or are not sure of being able to make payment of the second mortgage,” Freeman advises. “If one is late fee, it will increase the interest rate. It is only a temporary solution, since it could re-borrow.” The author insists that the second mortgage should only be used to cover expenses such as roof repairs or in cases of unforeseen emergencies.
The correct way to get out of debt with credit cards
If there are many wrong ways to get out of debt with credit cards (and get other debts), what is the magic solution? The answer is not a fast track, but it is safer and more durable.
The first step is a change in behavior. “The main obstacle is to change spending habits,” says Freeman. “Just doing this will reduce their costs and settle their debts.”
* Do not open new accounts.
* Reduce costs taking lunch to the office, traveling on public transport, wholesale purchase in stores, etc..
* Do a balance transfer unless he can pay the entire balance before the end of the initial promotion.
* Budget expenditure, over and over again.
“Develop a spending plan. Determine the total amount to be and their monthly income to see where you can reduce expenses,” suggests Freeman, who also advised to do everything possible to pay bills on time and immediately notify the creditors if it can not cancel within the period specified. If necessary, destroy all your credit cards except that used in emergencies and keep this card in a safe place to avoid the temptation to waste.
Once the bleeding financial content, it’s time to get down to work to reduce that debt. Often, a good next step is to request a credit card with zero APR interest rate for transfer balances. Consider this as a credit card consolidation loan debt and not carry. It is simply a place where you can freeze the debt without being charged interest, with the aim to start out. You must avoid using and card processing terminals as a rule of thumb.
At this point, get rid of the debt issue is to use their income to pay for it little by little, until it disappears. Eliminate debt takes time and self, but once they are rid of their shackles, it could breathe.