How to Get Out of Debt

November 16, 2021

Debt Relief:  Understanding Your Options

It has never really been much of a secret that Americans LOVE to get into debt. In 2020, the total debt of U.S. Households was $14.35 TRILLION.  On a more personal level, the numbers are even worse. The average person with credit card debt owes more than $14,000 in revolving balances. Even that pales next to averages of $31,142 for auto loans, $58,112 in student loans and $202,454 for mortgages.  First Oklahoma Federal Credit Union has the tools and experience to help you pay off high-interest debt like credit cards and personal loans.

Few Americans understand what to do to get out of debt. Living relatively debt free is hard.  It starts with willpower; something most of us struggle with. Fortunately,  there are other proven strategies, products and services  that can really pay off. Your local credit unions like First Oklahoma FCU have the tools and experience to  guide you in the correct direction. These include low interest debt consolidation loans,  attractive credit card options, as well as consumer counseling services to help you maintain a debt free lifestyle moving forward. 

Make the Commitment

If you are carrying large amounts of debt, be prepared to spend about 15% of your income on reducing it. Why 15%? Because if you just make the minimum payment on your credit cards and other loans, the interest charges will just continue to pile up. There are several things you can do to get on track. 

  • Online assistance. Consider buying debt- elimination software to help you run the numbers and set priorities. Popular choices are YNAB. and Mint 
  • Tighten your belt. To free up money in order to pay down debt, you’ll want to reduce your spending. Build a realistic repayment schedule.  Come up with a monthly budget, put everything in writing and stick with it. Use this Budget Worksheet to get started.

Need some more saving ideas? Prepare your meals at home. Make fewer expensive coffee choices. Cancel your cable and look at other streaming choices. Hunt for coupons or use browser extensions to assist in deals and coupons.

  • Bigger savings. Evaluate your insurance policies to see if you can find less expensive coverage that still meets the criteria that will work for you.

Dealing With Cards

Credit cards usually offer convenient buying power and can earn you some sweet rewards. The problem is they can charge way too much for your purchases after the fact. Unless you pay it off by the end of the month, you could get stuck with an extremely high interest rate. 

Set your priorities. If you have multiple credit cards (most do) identify the one with the highest interest rate. Pay as much as possible each month on that card and make minimum payments on the others. 

When that first card is paid off, switch the biggest payment to the card with the second highest interest rate and continue until your debt is gone.

Honing in. Another method is to apply for a new card that has a 0% interest rate for a certain amount of time, whether that be 12 or 24-months. You can then transfer the outstanding balances to that new card. 

This will buy you time to pay down those higher interest balances without the headache of constant interest. First Oklahoma FCU has a great Credit Card that can assist in your debt relief. 

Loan Arrangements

People need to send their kids to college, buy homes and obviously purchase a vehicle to assist in those things. But keeping up with all those payments can be a challenge. 

Manageable mortgage. Most homes are financed with either a 15 or a 30-year mortgage. However, you are not required to keep the original loan for that long. If interest rates drop, consider refinancing. Just a 1% rate drop can make your payments on a $200,000 home drop by over $100 a month.  Even if you are in a situation where rates aren’t dropping, you can still finance a loan with a longer payoff period to reduce those payments and the stress on your overall budget. First Oklahoma FCU offers many  Mortgage options to help you get monthly payments manageable. 

Shift away.  Consumers often drive away from the dealership with their favorite car, but they may not enjoy their overall loan. A great solution is to trade in that auto, motorcycle, or RV loan. Refinancing to a lower interest rate or longer payment period will reduce your payment amount as well as the overall stress on your budget and wallet.  First Oklahoma FCU offers auto loan refinancing.  

Get it together. Debt consolidation can also be a good strategy for consumers. First Oklahoma FCU offers great rates on Personal Loans and Home Equity. You can use money from those sources to assist you in paying down your debt.  Beware of debt relief companies and their offers. According to the FTC, many can be scams. Find out who are  legitimate credit counselors by contacting the Oklahoma Attorney General.

Debt Definitions

You may have heard a lot of terms surrounding debt.  A few to remember are: 

Debt Snowball. You focus on paying off your smallest debt first (while paying minimums on others), then roll the amount you had been paying into payments on the next largest.

Debt Avalanche. You pay off your debt with the highest interest rate first (while paying minimums on the others), then the next highest rate, and so on. It may save you time and money over the course of your next debt payoff.

Debt Consolidation Combine multiple old debts into a single new one, ideally at a lower interest rate, making payments more manageable or the payoff period shorter. There are a few ways to consolidate debt, including balance transfer cards and personal loans.

Debt Management Plan. If you’re facing a mountain of credit card debt and not making much progress, a non-profit credit counseling agency can set up a debt management plan to cut your interest rate and put you on a repayment plan.

Ten Signs that you need debt relief

  1. Do you use a large or increasing portion of your monthly income to pay your debt? Ideally, you want to have no more than 20% of your monthly income applied to the debt.
  2. Are you only able to make the minimum monthly payments towards your credit card or loan payments each month?
  3. Do you divert money to pay for bills that were intended for other things?
  4. Are you carrying high balances on your credit cards? Are they near or at their limits?
  5. Do you have to use your savings to pay bills?
  6. Have you been contacted by a debt collector or credit card company regarding delinquent accounts?
  7. If you have an unexpected need like a doctor or dentist visit, would you have to put it off?
  8. If you or your partner were to lose your income unexpectedly, would you find yourself in financial trouble right away?
  9. Are you currently, or have you considered, working a second job to get by?
  10. Do you feel stressed or worried when thinking about money?

If you answered yes to any of these questions, it is time to put a plan together.  First Oklahoma FCU can help you start building a secure, debt free future.  

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