You’ve had enough! The credit card bills, which are well over $1,000 each month, have gotten out of hand and you’ve finally decided to do something about it. But where do you start?
Not all progress is good progress, especially if you implement a debt-repayment plan that will backfire. And there’s nothing worse than working your rear end off to pay off debt, only to notice that the outstanding balances appear to be at a standstill.
Beyond only making the minimum payment each month, here are some of the worst ways to pay off debt:
1. Raiding your Emergency Fund
If you wipe out your rainy day fund to eliminate debt, what will you do the next time financial emergency arises? In most instances, you’ll rely on that same credit card you just paid off to remedy the issue. A better option: instead of touching your emergency fund, ax unnecessary expenses and use these proceeds and any other financial windfalls to accelerate debt-repayment efforts.
2. Credit Card Cash Advances
Thinking you can avoid interest by taking out a cash advance to wipe out your outstanding balance? Think again! Not only will you be hit with a cash advance fee, but an exorbitant APR may also apply. And don’t expect a grace period, either.
3. Payday Loans
If you have less than perfect credit and your finances are in dire straits, you may be considering a payday loan. And why wouldn’t you? There’s no credit check and the cash could be in your hand or bank account in less than 24 hours. Plus, you can extend the due date if you can’t afford to repay the loan balance on time. All you need is a verifiable source of income, bank account and you’re all set. That’s the pitch payday lenders love to give desperate, cash-strapped and vulnerable consumers, but what they don’t brag about is the exorbitant interest rates that accompany these loans. So, if a payday loan is the only way to pay down debt, call the creditor directly and request payment arrangements, instead.