How Can I Pay Off My Credit Card?

by Natalie Pace.

A 10-Step Plan for Getting Out of Debt Forever.

In 2011, the number one question searched for was , "How can I pay off my credit card?" (according to AOL). A lot of people are at their wit's end, and fall into the trap of seeking counsel from the bill collectors, who are really just trained to make sure that you pay them as much as possible, regularly, from your monthly nut. They are not trained to help you get out of debt, or to counsel you, but they are trained on how to use sales tactics (including fear, intimidation, false friendship, etc.), to cajole, demean, belittle or flatter you into paying them first, before any other bill or retirement plan.

What a lot of people don't realize is that even if you make timely and regular payments on your credit card debt, your credit score and debt load could be getting worse. New credit and types of credit in use account for 20% of your score. The amount you owe (which is increasing if you are making minimum payments) is a whopping 30% of the score. And if you make the payment, but make it late, that is reducing your score as well.

In most, but not all, cases, making payments on your debt is a piece of the solution, but it is never the entire strategy. In fact, in many cases, your credit score actually improves when you declare bankruptcy. Debt restructuring, through the bankruptcy courts, is not the best option for everyone, but it is an option that anyone who is severely indebted, with little hope of paying the debt off, should put on the table early in the game. The sooner you restructure your debt and lifestyle, the sooner that you can start rebuilding your life and credit score.

Never, ever, borrow from your IRA (or 401k, annuity, or any retirement plan) to "pay Paul", i.e. to pay down your credit cards, and only borrow from Peter (other sources, such as home equity) if it is a part of a well-developed strategy that includes expense reduction, a new budget and a plan that will result in positioning you better (rather than worse) in the next 3-5 years. As Pamela D. Simmons, a partner with the Law Office of Simmons & Purdy, who is an expert on mortgage lending law, counsels, "If you are using debt to pay your mortgage, you really need to stop." Why? Simmons says, "No matter what happens, you can almost always count on being able to protect your retirement fund from the lien holders. So why would you want to spend that money?"

10 Tips to Get Out of Debt Now

1. Pay yourself First. You will never earn your way to financial freedom. If you don't invest your money well, then the minute you lose your job or retire, your lifestyle will go downhill fast. Financial freedom is a result of investing well, not just "doing a good job." Put 10% of your income into a tax protected retirement account as the first thing you do. This is protected from all financial predators, even debt collectors and even in the worst-case scenario of bankruptcy or foreclosure. The debt collector is not going to take up a collection to keep you off the streets and well-fed if you lose your ability to earn income. That is your job. Even when you are in debt.
   
   
2. Increase Income. Paying 10% into your retirement account is one way to increase income because that is money that you would have spent or given to the debt collector. Another way to increase income is to learn how to make your money make money while you sleep -- through wise investing strategies. If you don't know Modern Portfolio Theory, annual rebalancing, how to avoid the bailouts and how to add in hot industries, read You Vs. Wall Street, as a start. As Joe Moglia, the chairman of TD AMERITRADE, reminds us, "No one cares about your money more than you do."
   
   
3. Decrease Expenses. Cutting out café lattes could make you cranky, but it won't make you rich. This is where you have to be brave and make bold choices. As just one example, many Asian immigrant families invest heavily in education, sacrificing lifestyle if necessary, to send their kids to college. Today, Asians are the highest income earners of any race in the U.S. I know a father who moved back into his parents' house to finish his education, and emerged to become the chief executive of a $12 billion company. Invest in things that have a high probability of paying you back. Spending on McMansions and sports cars rarely do.
   
   
4. The Big Three: Housing, Transportation & Insurance. When you are considering how to cut expenses, you must look at housing, transportation and insurance, which are the three most expensive things in the budget. Yes, you must get creative because the way you've been thinking has put you into extreme debt. So, can you house-share? Downsize? Take public transportation to and from work? Carpool? As for insurance, there is one important consideration that might help tremendously, directly below.
   
   
5. Health Savings Account. If you are a healthy person who never goes to the doctor and you have a low deductible insurance plan, you are making the insurance company rich. In fact, you could purchase a high deductible plan, save money in your Health Savings Account to cover the deductible in the worst case scenario, take a tax write-off and invest the money in your Health Savings Account for a chance at even more gains. Learn more about Health Savings Accounts on the IRS.gov website.
   
   
6. Debt Consolidation. As FINRA.org (the Financial Regulatory Agency) reminds us, "Few money-management strategies pay off as well as, or with less risk than, paying off all high interest debt you may have." FINRA.org has excellent resources and ideas for reducing debt. As I've outlined ad nauseum in this chapter and book, however, do not secure new debt to pay off old debt (like tapping a lower-interest line of home equity credit), unless that is a part of an entire, sound money makeover.
   
   
7. Credit Counseling. The Federal Trade Commission warns consumers that credit counseling agencies, even those that claim they are non-profit, can "charge high fees, which may be hidden, or urge consumers to make "voluntary" contributions that can cause more debt." So, rather than think this is a panacea, you must have your guard up. Loan modification scams were, sadly, plentiful, during the Great Recession. For tips on how to get the best help, review the FTC.gov web page on debt.
   
   
8. Chapter 7 and 13. There are two chief differences between these two types of personal bankruptcy. You must wait 8 years to file Chapter 7 again; whereas you could file for Chapter 13 in two years. And if you have a steady income, you may be able to save your home and car in Chapter 13, whereas those assets might be repossessed in Chapter 7. Both may, in many cases, stop foreclosures, repossessions, utility shut-offs and debt collection, at least temporarily. There are fees involved in bankruptcy filings and you must get credit counseling before any discharge will be granted. USCourts.gov/BankruptcyCourts has additional information and forms.
   
   
9. The Thrive Budget™. What will get you out of debt forever and put you on the path to financial freedom? Adopting a Thrive Budget, which is based on the simple theory of 50% to Thrive and 50% to Survive. When you limit your basic needs to 50% of your income (and yes, you can do this), then you have 50% to invest in your future and financial freedom. I outline exactly how to do this in my books, You Vs. Wall Street and Put Your Money Where Your Heart Is. The Thrive Budget, more than anything, is the key to getting out of debt forever.
   
   
10. Financial Education. I know economics majors who haven't the first clue about a sustainable budget or how to identify companies that are headed for bankruptcy. (The U.S. wouldn't have any banks, if we hadn't bailed them out in 2007.) Therefore, you cannot just blindly trust any "financial professional" to invest your money for you. The 21st Century is very different from the 20th Century, when Buy and Hold worked pretty well. The developed world is debt laden and in slow growth mode, while the developing world is expanding rapidly and concerned about inflation. What does that mean for you? It means that you must learn strategies for the new world. In my Investor Education Retreats, I feature all of the trademarked strategies that I developed to become a #1 stock picker. It is an investment in the financial education that you should have received in high school, and better than that, it is easy-as-a-pie-chart. Check out NataliePace.com and join us at the next retreat!

So, don't let fear of FICO score keep you trapped in debt consciousness. Once you adopt the wealth consciousness strategies that have helped the richest people in America pare their debt and manifest their dreams (like Donald Trump), the sky is the limit on what you can achieve. Stop getting your debt reduction strategy from the debt collector. Start creating your dream come true life, using the laws of the land and the plentiful free resources that are available from U.S. government agencies (if you look in the right place).

For details on how to eliminate debt forever and to get your questions answered, join me in my call-in BlogTalkRadio show on Tuesday, February 21, 2012 at 9:00 a.m. Pt. Call-in number is: (347) 215-7305.

About Natalie Pace:
Natalie Pace is the author of You Vs. Wall Street. and Put Your Money Where Your Heart Is, and the founder and CEO of the Women’s Investment Network, LLC. She is a blogger on HuffingtonPost.com, and a repeat guest on national television and radio shows such as Good Morning America, Fox News, CNBC, ABC-TV, Forbes.com, NPR and more. As a strong believer in giving back, she has been instrumental in raising tens of millions for public schools, financial literacy, the arts and underserved women and girls worldwide. Follow her on Facebook.com/NWPace. For more information please visit NataliePace.com.

Please note: NataliePace.com does not act or operate like a broker. We report on financial news, and are one of the most trusted independently owned and operated financial news corporations in North America. This article is intended to educate and inform individual investors, and, thus, to give investors a competitive edge in their personal decision-making. The publicly traded companies mentioned in this article are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies.   Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a long, safe strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.