It’s one of the most powerful tools in our financial belts… one of the most feared situations in any household… and one of the most universal conditions in a capitalist society.
I’m talking about debt.
Debt isn’t, in and of itself, a bad thing. In fact, the “invention” of debt as a tool has led to greater financial mobility and riches that the world has never known.
Before the invention of mortgages — and what is a mortgage but a giant pile of debt? — you basically had to be born into money to own your own home. Consequently, no one but the wealthy could use property as a ladder to greater wealth.
Debt changed that. Today, almost anyone with a steady job and responsible credit can buy a house — sometimes with as little as 0% down.
Most businesses can’t get started without debt. An idea is just an idea without money behind it — but few have the money to put an idea into action before that same idea can turn a profit.
Heck — most people couldn’t even get a car without debt. And without a car, most on-site jobs are simply out of reach.
There’s no doubt — debt does a tremendous amount of good.
But when debt runs away from you, it can do an awful lot of harm too.
That’s why today I’m going to cover three ways to retire your most expensive debt.
This isn’t about a mortgage or car payment — both of which should have low interest rates. Plus, it makes sense to pay these off early only in some situations.
No — this is about how to get rid of your high-interest credit card debt… the subprime loans you may have taken out when you were in a pinch… and other sorts of debt that are actively working against your wealth strategies.
To be clear — these are things anyone can do at any time. You don’t need to have all the money you need to pay off your debt entirely. (If you had that, you wouldn’t need this advice.)
In some cases, having a good credit score can help. (And if you don’t have that, start here to put yourself on the path to better credit.)
But even if you have lousy credit, you can do these things to eliminate high interest rates on your worst debt. And that’s the first step to going from a debt-driven financial situation to a surplus-driven investment strategy.
Which is exactly how you build wealth that lasts.
Let’s get started.
Debt Beater #1: Consolidated Credit
If you have significant debt, odds are you’re paying too much interest on some of it. This is where consolidation loans come into play.
You see, plenty of banks and other financial institutions offer better interest rates than credit cards. Often markedly so.
For instance, lots of credit cards charge 20%-plus APRs… or even 20%-plus over the prime rate. Meanwhile, if you’ve got decent credit, many banks — especially peer-to-peer lenders like LendingClub — offer interest rates under 10%.
Even if you’ve got bad credit, your interest rate will just about always be lower than it is with credit cards.
This makes for a simple solution: Take out a consolidation loan and use it to pay off your credit cards.
You’ll still owe all of the principal. But with the lower interest rate, you’ll be able to pay off more of that principal every month — and waste less money on service charges.
I recommend using a peer-to-peer lender like LendingClub. But you can do the exact same thing with just about any bank.
Just know going in — the older and staider the financial institution, the more stringent their requirements will be.
Debt Beater #2: Tally-Ho!
A new app named Tally takes debt consolidation one step further.
When you join and connect your credit card accounts (or other types of loans), Tally will give you a line of credit to pay off all your high-interest debt, leaving you more reasonable, low-interest debt in its stead.
But it goes beyond just that:
- Tally’s smart algorithms can balance all your debts and figure out which ones make sense to transfer — and which to leave alone
- Tally can pay all your credit card bills for you — so you never have to worry about late fees
- Tally will also advance you money — which means you don’t have to worry about over-limit fees either.
And perhaps most powerful of all, Tally can size up your entire debt situation. So if you want to have all your debt paid off in two years, for instance, Tally can tell you exactly how much you need to pay each month.
Or it can go the other way… You can tell Tally what kind of monthly payment you can afford and it will tell you when you’ll have your debt retired — and how much of that money will be wasted as interest payments.
All in all, Tally is a great motivator. And one of the best possible ways to truly get a handle on your personal debt situation.
Debt Beater #3: More Credit Cards?!!
It may seem counterintuitive, but sometimes the best solution to credit card debt is another credit card.
Hear me out.
It’s important to find a credit card with friendly transfer fees in this case. Like one that lets you transfer money at 0% interest for 12 or 18 months.
Usually, there’s an upfront fee involved — like paying 3% of the entire debt when you transfer.
But think about it: When you transfer that money — paying 3% for 18 months of grace — you’re effectively paying 2% a year. Which is a whole lot better than 20%-plus.
There is a catch. You need to keep good track of this debt. In many cases, if you haven’t paid off the debt by the time the 0% interest period ends, any remaining debt gets retroactively charged the credit card’s usual APR.
But if you can pay off the balance in a year and a half — with the benefit of not having to worry about interest charges that whole time — you’re in the clear.
And if you don’t quite make it, you can always transfer your balance to a different card and restart the clock.
Of course, you shouldn’t use this as an ongoing solution. But it’s a great way to give yourself a breather while you play catch up.
Or to cover for any unexpected emergencies you simply can’t afford at the moment. Like a down payment on a car after your old one goes kaput… or a medical bill that comes out of left field.
You won’t be able to retire all your bad debt immediately using one, or even a combination, of these strategies. But you will be able to change that bad debt into something much more manageable.
And from there it’s a simple matter of saving more than you spend to get out of the hole.
Editor-in-chief, Unconventional Wealth
P.S. Would paying off a high-interest credit card with a low-interest balance transfer offer make a difference to your finances? Here’s a list of the best balance transfer cards out there today. I highly recommend making use of them — but please bear in mind this is my own editorial advice and isn’t coming from a bank or financial institution. And if you are coming by this article at a later time, be aware that offers change often and this list may be out of date.
Ryan Cole is the editor-in-chief of Unconventional Wealth. He’s been covering the alternative investment space for nearly a decade and writing about finance and investment for almost 20 years.
Ryan has walked the walk for years, living a very unconventional life. He’s led snowmobile tours through the mountains of Colorado, settled in Japan for five...