A large percentage of American adults have unsecured debt, such as credit cards, and half of those owe literally thousands and tens of thousands of dollars. Needless to say, debt in America is a big problem.
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But not all Americans who are in debt have bad credit or low income. In fact, many have decent if not very good or excellent credit and earn $100,000 or more per year. Still, they may thousands if not tens of thousands of dollars in credit card debt with interest rates that are unnecessarily high.
Leave your bank for a credit union
Who you bank with can make a ton of difference. If you can avoid it, don’t bank with the “national name brand” banks. There’s simply no compelling reason to bank with them and lots of compelling reasons not to. Here are just a few:
- High Fees – Most large banks are making their money in retail banking by feeing you to death. This includes checking fees, ATM fees, account transfer fees, teller fees, issuing a paper statement fees, and so on.
- Low Yield Accounts – Big bank yields on savings accounts and certificates of deposits are notoriously low. You’re caught between the high fees you pay them and the low interest they pay you. It’s a lose-lose situation for you.
- High Interest on Loans – Banks are in business to make money. Where do they get that money? From depositors like you. That includes the double-digit interest rates on unsecured loans as well as on their “sponsored” credit cards.
These three reasons alone should be enough to convince you just how evil the big banks are. You’re much better off doing your banking at a local credit union. Notice I didn’t say “national.” I said “local credit union.”
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What’s the difference? Local credit unions have to survive in the community they serve. That means they need to attract you and your money away from the national brands. To do that, they offer, among other things, very low interest loans.
Pay off high interest debt with low interest debt
Your first step once you’ve found and joined your local credit union, is to take out a loan large enough to pay off as much of your credit card debt as you can. I guarantee you that the interest rate will be as low as half of the interest you were paying before. This means your payment will be lower as well.
What’s more, the term of the loan can be any where from one year to five years, so you know that you’ll be out of debt when the term ends, if not sooner. The substantially lower interest rate on your credit union loan – say between 6-8.5 percent versus 12-25 percent on your credit cards – means you can pay the debt off even faster just by making the same payments you were making on the credit cards.
Car equity loans are the cheapest!
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Another possible source for low interest loans to pay off high interest debt is your car. If you have equity in your car, most credit unions will let you pull that equity out of your car and charge you a car loan interest rate of around four percent. That’s a great way to pay off your high interest credit card debt.
Want to get out of debt altogether? Sell the car and voila! You’re out of debt completely.
Turn bad debt into good debt
You can do the same process with your house, if you own one and have equity in it. Rather than pay the high interest rates of your credit cards, refinance your home at today’s historically low rates. Pull some cash out of the equity and pay off your credit cards. That way, the interest that you will now pay is tied to your home and is therefore tax deductible.
I realize, of course, that this option isn’t possible for everyone. But if you happen to live in the areas of the country where housing prices have gone up the past several years, then it probably is possible and a very smart option to consider.
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Seller-financed property for income and tax advantages
And speaking of housing, in many parts of the country where housing prices have stagnated or even fallen, you can actually get into a rental property or a primary residence. The process is pretty simple. Take that same, low interest, unsecured credit union loan and use it as a down for a seller-financed property. In case you weren’t aware of it, seller-financed houses are back in a big way.
Unlike housing lenders, sellers who carry the loan themselves don’t care where the down payment comes from. The benefit of a rental property is not only the cash flow, but also the tax deductions from depreciation and other deductions that let you keep more of the money you’ve earned. Use that refund you will quite possibly get to pay off other debts or even the down payment loan you took from the credit union.
