On the Road to Becoming Debt Free
It has been a difficult year for everyone.Coping with volatile markets and soaring unemployment,credit card balances have risen to uncomfortable levels for far too many.So how can you dig out from under all that debt to a better financial future?
“The trick is to manage our debt so that it doesn’t manage us,”says Gayle Pingree,vice president and manager of consumer and bankcard credit at First Hawaiian Bank. “You need a sound plan and realistic options.”
Debt management isn’t as impossible as it may seem. Here are three steps to getting a plan to control personal debt and three options to give that plan a kick start.
Step 1: Start today. Begin by figuring out how much you owe. Make a list of all your credit cards and what the minimum payment is on each one, as well as the interest charged.
“Examine each statement to identify fees that will compound the expense to carry this debt,” says Pingree.”Put yourself in the right frame of mind.You can do this.”
Step 2: List all your monthly recurring income. Subtract the debt payments that must be paid – mortgage,car,insurance,as well as estimates for food and entertainment.The money that is left is your “disposable income”and what is available to pay off debt.
Step 3: The plan.Prioritize your payments.
“If you can,pay off the highest interest credit card first,”Pingree advises.
So if you have five credit cards,make the minimum payment on four of them,and put all the extra money into paying off that high interest card each month until the balance is zero.Once you’re down to four cards,tackle the card with the next highest interest rate.
“The average consumer has too many credit cards,” says Pingree.”So as you pay off the high rate cards,cut them up.Out of wallet,out of mind.You only really need two cards – a favorite one and then a back card up in case your favorite card’s magnetic strip has problems.”
First Hawaiian Bank’s personal bankers,offer three options for those looking to help speed the process along and save some of the money spent on interest – especially if you are unable to pay off your credit card balances in full.
“One solution we offer at First Hawaiian Bank is debt consolidation,”says Pingree. With rates at historic lows,you can refinance your mortgage, take out a home equity loan or a personal loan if you don’t own a home,and put yourself instantly in a better financial position.”
Option 1: If you’re a homeowner,you may consider “cash-out refinancing.”
“Refinancing your existing mortgage for more than the balance owed will give you the cash to pay off debt,” Pingree explains.”I recently refinanced to lower my rate by a mere 1 percent.There are fees associated with refinancing.However,over the long term,it makes sense for me because I plan to stay in the property and will offset the points I had to pay with a lower interest rate and lower payments.”
She cautions borrowers to do their homework.If your plan is to move out of your home in the near future,this option may not be your best choice.
“For borrowers who have already paid on their mortgage for 10 or 15 years, consider shortening your term from a 30-year to a 15-year loan,” adds Pingree. “15-year mortgage rates are currently at 3.5 percent with 2 points.”
Option 2: Take out a home equity loan.This is another way to consolidate your credit card payments into one loan. Plus, not only will the lower interest rate will save you money, the interest paid on a mortgage or an equity loan is likely tax deductible, providing additional savings, according to Pingree.
Option 3: Even if you don’t own a home, help is available. First Hawaiian Bank offers a PayAnyDay loan as a debt consolidation solution. PayAnyDay loans are easy to apply for and you don’t need a house as collateral.
“As with all of our products at First Hawaiian, we value Service, Solutions and Safety/Security, we call it the three S’s,”Pingree says. Each of our branches has dedicated personal bankers who are trained to assist with debt consolidation requests and mortgage refinance opportunities. Their goal is to offer solutions and ways to help you to becoming debt free.”
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