Middle Class Lifeboat Blog

Practical Tips to Begin the Help You Lift Your Load
by Paul Edwards
co-author Middle-Class Lifeboat

Many Americans are drowning in debt. The average American is carrying over $9000 in credit card debt. Many also have upside down auto loans, ballooning mortgage payments, and college loans.

Is there a Middle Class Lifeboat amidst this sea of debt? Yes, but reducing debt is a necessary step in preparing our own middle-class lifeboat because being weighted down by debt limits your vision and your choices for building a secure lifeboat. So here are some specific things you can do to get rid of debt:

First Steps
- Contact your lender. Most people don’t do this. A recent Roper poll found that over half of delinquent homeowners don’t know lenders will work with them, perhaps by adding a missed payment to the loan or offering free counseling.
- In talking with your lender determine if your lenders will lower your interest rate or write you a new loan, as we suggest below.
- After you’ve gotten as many of our interest rates lowered as you can, you can pay down the loan at the highest rates first.

Credit Card Debt
- Renegotiate high interest rates, the federal law permits up to 30%, so get the rate DOWN.
- Transfer as credit card debt to zero percent credit cards. Then transfer it again to another zero percent credit card before the zero percent offer expires, often at the end of a year. Opening a new credit card account does affect your credit rating, but perhaps not as much as you think. It’s 10% of your FICO rating.

Here are some sites where you can compare credit card rates and fees:
www.bankrate.com
www.cardfusion.com
www.cardratings.com
www.credit.com
www.creditorweb.com
www.cardtrak.com
www.e-wisdom.com
The American Bankers Association offers a free guide to credit cards.

Mortgage debt
· Call the loan workout department of your lender of the company servicing your loan; explain you don’t want foreclosure and ask them to reset the mortgage interest rate
· Refinance your mortgage if you qualify – rates are a point lower than a year ago.

Auto loans – particularly if you owe more than your vehicle is worth
· Do you need a gas guzzler - one you got for recreational activities or vacations you can no longer afford? Get what you can and take advantage of bargains on used vehicles.
· Only if your auto loan rate is high (over 10%), consider refinancing.

Take a look at your expenses
· Simply simplify. Ask yourself, “What would happen if I didn’t have or do …..” This will help you divide what you want from what you need. Are restaurant meals, outside services, away-from-home vacations things you need or can find substitutes for?

Develop new habits
· Pay with cash for instead of a credit card yourself. It may help to leave your credit cards at home or even cut them up.

Hardship withdrawals from your 401 (k)

Be careful about making a hardship withdrawal from your 401 (k) if you’re under 59 ½ . Early withdrawals can result in taxes and penalties result costing you 35-45% of what you withdraw. For information about what kind of withdrawals can be done without penalty, here a link to an article that will provide you an overview.

Get outside help
· Debt counseling at a consumer credit counseling agency affiliated with National Foundation for Credit Counseling, 800-388-2227, www.debtadvice.org/takethefirststep/locator.html
· Debtors Anonymous, 781-453-2743, www.debtorsanonymous.org
· Bankruptcy is a last resort – it puts a cloud on your credit for ten years

This entry was posted on Tuesday, January 29th, 2008 at 1:51 pm and is filed under Debt reduction. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.