Money Rehab with Nicole Lapin - 4 Hacks for Busting Credit Card Debt

Episode Date: March 19, 2024

Nicole goes beyond the typical budgeting advice, and brings you four pro tips for getting that debt monkey off of your back. $ If you're ready to find your dream team, use LinkedIn Jobs. Post a job for free at: linkedin.com/mnn $ Want to level up your money moves? Check out Facet. Facet is the next generation of personalized financial planning that is making professional financial advice accessible to the masses, not just the rich. Facet will help you understand and expand your financial opportunities by providing you with a team of financial planners (with the CFP® certification you want) and a team of professionals across all the major food groups of your financial wellness: retirement planning, tax strategy, estate planning and more. To claim Facet’s offer for Money Rehabbers, go to: https://facet.com/moneyrehab 

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. It's time for some money rehab. Credit card debt can feel crushing and inescapable. I know this all too well.

I struggled with it myself. There are lots of great plans out there, though, for paying down debt. My go-to recommendation is that you identify the debt with the highest interest rate and pay that one off first. But today, I want to dig a little deeper and talk about some lesser-known tricks, things that go beyond making a budget to really tackle credit card debt. Number one, debt can quickly snowball out of control with high interest rates, but you can give yourself a quick break with a balance transfer. Some credit cards will offer you a 0% interest rate for the first

year. If you can get one of those credit cards, you can take your existing debt and transfer it over to the new card. Now, sadly, this is not free. There's usually a fee between 3% and 5%. And the sky's not the limit here. Depending on the size of your debt, you may not be able to put it all on one card. But even just putting a significant chunk in at 0% or a very low interest rate for a year will give you a chance to have a little wiggle room to get out from under that debt. Now, this 0% rate is only for the first year, which means you have to pay this debt off quickly. But it also makes a big difference. So let's say you have $10,000 in

credit card debt at a 20% APR and you make regular payments of $926, you will still end up paying $1,116 in interest in a single year. Yep, that's right. You will pay more in interest overall than you pay a month. But if you take that same $10,000 and transfer it over to a 0% APR card, then your interest rate payment goes down to $833 a month. Number two, consider taking out a home equity line of credit. Before you ask, yes, you can take these out before you've paid off your home. Right now they're hovering between four and a quarter and seven and three quarters percent, depending on your credit score. Since credit card APRs are leaping past the 20% mark, this can be a huge savings. If you're carrying multiple cards with balances, this can also simplify the payment problem. No more worrying

about tracking which card has the highest interest rate. You can just pay them all off together. This loan represents serious savings. Let's look at that same $10,000 in debt and that same time frame of one year. Only this time, instead of paying a 20% interest rate, your interest rate is 6%, a home equity line of credit or HELOC rate for someone with okay but not awesome credit. You can pay that debt off in one year with monthly payments of $861 and your total interest rate payments come in at $328. You can pay that debt off in one year with monthly payments of $861 and your total interest payment comes in at $328. That's a savings of $788 on the interest payments. Now this only works as a solution.

This is really important too. If you know you will be able to pay off that loan, the worst possible scenario is that you struggle to pay off this loan as well and end up jeopardizing your house. Number three, avoid debt settlement companies. I am allergic to financial cliches, as you well know, but truly, if you well know.

But truly, if you hear something that sounds too good to be true, when it comes to debt settlement, it probably is. That is often the case with debt elimination companies. These companies prey on people who are deeply in debt and promise to eliminate their debt often by claiming that debt is illegal. I mean, there is a special place in hell, I think, for people who prey on those deep in debt. They tell you you can pay for their services with a credit card and they'll make all of your debt disappear, including their payment.

This is BS. If anyone tells you they can eliminate all of your debt without paying it off or declaring bankruptcy, they are lying to you. Now, debt settlement companies are a little more subtle than that. They do offer to negotiate down your debt, but they also ask that you deposit your money into an escrow account or a third-party account for over a year to save up to pay off that debt. As part of this negotiation process, the debt settlement company will often tell you to stop making payments on your debt. What they won't tell you is that their failure rate is really high.

Many people can't keep up with payments. Customers also ended up being sued by their creditors for failure to pay, which adds legal fees on top of their existing debt. While this may work for some people, for most, it's just better to negotiate directly with your creditors. And that takes me to number four. Negotiate. You don't need another person to do this for you. You are fully capable of doing this on your own. But come prepared. If you've been making payments, you can start off with an easy ask. Does your credit card company have a debt hardship program? Most credit card companies do. Capital One, American Express, both have them, although details of a plan might vary based on your situation. These plans can help you get your

debt under control, but you won't even know they exist until you ask. So write down all of your questions ahead of time and start with the simplest one. Hey, I'm struggling to make my payments. Do you have a hardship program? Now this can work well for people who are making their payments. But what if you're in default? In that case, you can ask your credit card company for a workout agreement, which is a payment plan with your credit card company, or for a lump sum settlement, which is when you pay off the entire debt at once for less than base value of that debt. There is no harm in asking your credit card company for these things. It doesn't lower your credit score. You're totally free to call them as much as your heart desires because persistence and not taking no for an answer will often get you pretty far in this

situation. For today's tip, you can dig straight to the bank. Don't cut up unused credit cards. This might sound a little surprising, but bear with me. Let's say you have some random gas cards or department store cards that you don't use anymore. A credit score misconception is that you should cancel those cards if you wanna improve your credit score. That is wrong.

You want a record of being able to show that you are paying your credit card bills, not being a serial credit card opener and canceler. The best way to keep up steady payments that you can sustain is to put one regular bill like a cable or utility bill on each card. Set that bill to auto pay on your credit card so that you're technically using your credit card, but not necessarily thinking much about it while you're wrapping up good credit points. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some

money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.