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Coming Back From the Debt Trench? 5 Ways to Do So

Coming Back From the Debt Trench? 5 Ways to Do So

There are different reasons for why a person might submerge himself/herself into debt—a sudden death in the family, loss of job and income, worsening health conditions, going through a divorce, and so on. Even without these unfortunate circumstances befalling a person, they may still get into a seemingly endless trench of debt thanks to the inability to manage cash wisely and the lack of discipline. Fortunately, it’s never too late to rescue yourself from the financially gloomy position you’ve put yourself in. Here are five ways to make a financial comeback from your debt trench.

Know Your Options

Knowing what your options are can drastically affect the outcome. Being limited with only one option can impede your progress of achieving the goal, which ultimately is to get out of that proverbial hole. Recovering from debt generally has three possible solutions: pay off any outstanding accounts, settle it, or file for bankruptcy. The latter, obviously, is something you should only consider if worse comes to worst. Debtors basically start to build a new credit profile within 24 months of settling their last unpaid account/s. The amount of time to recover from any of the three debt relief options will vary.

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Create a New Budget Plan

If you had a previous budget plan before you got yourself into financial debt, it’s time to wipe the slate clean and create a new budget plan that will fit your present circumstance and future financial goals. Write up a list of monthly expenses and compare it to your income. Take into account unforeseeable expenses into the monthly budget plan to cushion future financial blows. Include recurring expenses, such as therapy sessions and medication.

Trim the Fat

Proactively seek to lower monthly expenses. Cancelling magazine or channel subscriptions can free up substantial cash that can be used to repay outstanding debt and possibly grow passive income in the form of interest. Other ways you can trim expenses is to switch to generic store brands instead of pricier gourmet brands. Keep in mind that your lifestyle doesn’t have to take a drastic step back just so you can have more savings. Conducting extensive research and making regular self-assessments can continuously reduce expenses.

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Boost Your Credit Score

Poor credit score leads to higher loan interest rates or even rejected loan applications. A rejection from traditional loan options will force you to take on less conventional credit lines, like payday loans, which only give you more debt to worry about in the future. Boost your credit score through proactive monitoring or by signing up for a credit monitoring service. Check your credit reports and dispute any inaccuracies that may be impeding your credit repair goals.

Capitalize on the Right Credit Tools

Debt isn’t always a bad thing. Some debt options can work to your advantage if intelligently utilized. For instance, applying for a secured credit card instead of a traditional credit card gives you a safer line of credit in the event that you cannot pay the principal amount.

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With a secured credit card, you give the lender a security deposit in exchange for a line of credit. If you default on the credit payments, the lender takes the cash from your security deposit thus limiting the effects to your credit score.

Coming back from debt can seem like an insurmountable challenge, but with the help of these five tips, you’ll be able to gradually improve your financial situation while also permitting yourself to a healthy and normal financial lifestyle.

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Try these tips out and let me know what you think. What other steps do you recommend in dealing with debt?

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Kevin Faber

CEO Silver Summit

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Last Updated on March 4, 2019

How to Use Credit Cards While Staying Out of Debt

How to Use Credit Cards While Staying Out of Debt

Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.

I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.

Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.

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Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.

Do Not Treat Credit Cards as Your Funding Sources

Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.

I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.

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I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.

If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.

Make Sure to Always Pay Off Balances in Full Each Month

The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.

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Using Credit Cards with Rewards

Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.

You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.

I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.

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So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.

What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.

Featured photo credit: Artem Bali via unsplash.com

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