The key to reducing high-interest credit card debt is having your income and assets work to your advantage.
Has your divorce left you with more debt than you feel comfortable having? Too much debt can be a hindrance to financial freedom. Instead of working toward your goals, you may be finding yourself sidetracked by having to pay off high-interest credit card debt, such as credit cards.
After my divorce, I had to learn to live on a much smaller income while caring for my two young sons. Debt was an issue. I developed strategies that helped me reduce my expenses, increase my income, pay down debt, and eventually start to save. I compiled these strategies into a book called Freeing Yourself Financially: A Woman’s Guide to Rebuilding Her Finances After Divorce.
Debt occurs from many sources. You may have gone through an expensive divorce and had to borrow money to pay your attorney. The debt could have accumulated during the marriage. You may now have the full financial burden of a mortgage.
Is debt inherently bad? No. We borrow money for many reasons. Borrowing for large purchases such as a home or automobile makes financial sense. Many people cannot afford the total cost of an automobile outright but can afford a monthly car payment. Debt becomes an issue when we can’t pay for our daily living expenses without increasing our debt.
When figuring out how to pay down your debt, it is important to get a snapshot of where you currently stand.
What do you own (your assets)? Do you have money in a savings account or investment account? Do you have equity in a home? Once you have an understanding of your assets, focus on what you owe (your liabilities). What are your home and automobile monthly payments? What are your credit card balances and the minimum monthly payments? What other debt do you have, such as student loans or legal fees? Look at the interest rate you are paying. Order the bills from the highest interest rate to the lowest. Generally, credit cards will charge the highest interest.
Let’s focus on reducing the debt with the highest interest rate.
We’ll assume it is credit card debt. Find the credit card that charges the lowest interest rate. Is there a way to consolidate all of the high-interest credit cards to this card? If so, you can accomplish two things. You will reduce the total amount of interest you have to pay because you have chosen the lowest rate. Also, you can focus on paying down the balance on one bill instead of juggling several different bills. This saves money, reduces stress and simplifies your financial strategy. Next, call the credit card company and try to renegotiate the interest rate. The company wants to get paid back and has an incentive to work with you. Try it; you have nothing to lose.
Now concentrate on what you own.
Do you have money in a savings account that you could use to pay down some of the debt? Experts say that it is important to have three to six months of expenses saved in case of an emergency, however, it is advisable to make debt repayment a priority. If you have money in an investment account, you could use some of that money to reduce your high-interest debt.
Any extra or unexpected money that comes in should go directly to your credit card bills. If you start to bring in income from a second job or if you receive a tax return, put this money towards the debt. Look at your housing situation. Is there potential to tap into an asset or reduce the amount you are paying for housing? If you have equity in your home, you could look into getting a home equity loan which generally charges a much lower interest rate than other debt because the loan is collateralized. You could possibly downsize into a smaller and less expensive home or apartment and put the monthly savings toward the high-interest bills.
While you are reducing your debt, try not to use credit cards.
Switch to a debit card or cash, if possible. The key is having your income and assets work to your advantage.
This can be a lengthy process, but don’t give up. Using these tips and others can help you get on the path to financial freedom. Freeing Yourself Financially: A Woman’s Guide to Rebuilding Her Finances After Divorce contains additional information regarding strategies I have used and is available on Amazon.