Imagine yourself with $100,000 worth of credit card debt. How do you think life will go on from now? For a minimum wage worker who earns $7.25 an hour, it is equivalent to more than 13,793 hours of work. Of course, you will not put all your money into paying off this amount of debt so it would probably take the rest of your life to get out of debt.
This scenario is not unlikely to happen because according to MarketWatch.com, a lot of people have increased their spending without really paying their credit card bills regularly. We all know that these cards are notorious for their high-interest rates. If you cannot pay off your credit card balance, you might end up accumulating a hundred thousand on your card. In fact, the data provided in the articles revealed that our combined credit card debt is about to reach $1 trillion by the end of 2016. At least, this will come to pass unless we try to do something about our credit card bills.
But what can you do to pay off such a huge amount of debt? What do you own that can possibly help you pay this off?
Well, a lot of Americans own their house and it should have an equity of at least $100,000, right? Why not use this to pay off your credit card debt? You can sell it, move to a small house that costs $100,000 less and you can be free from your credit card debt.
While it might be logical to do so, your emotions might not be ready to make this sacrifice. What if your home has a sentimental value? What if you want to keep it for your kids to live in someday?
How to pay off your credit card balance without selling your house
Good news is, there are options for you to pay off your $100,000 credit card debt without necessarily selling your house. That does not mean you will not use it. Your house can still play a major role in helping you pay off your debt. After all, this is such a huge debt that you cannot afford to pay it without using a collateral.
Here are three options that will help you pay off your credit card debt through your house.
Refinance your home.
If you cannot sell your house, you can refinance your mortgage. According to TheMortgageReports.com, this is a great time to refinance – at least, if you consider the market conditions. In fact, the article mentioned that around 7 million homeowners are eligible to refinance their property. This will work really well if you have built a huge equity on your house – at least enough to cover your huge credit card debt. When you apply for this loan, your home will be evaluated. If you get a great appraisal, you can get a huge amount of cash at your disposal. While you cannot refinance the whole value of your house, if your equity is big enough, you might be able to pay your credit card debt completely. You can use the money to pay a lump sum and get rid of the high-interest debt. Since refinancing is a secured debt, the interest rate is lower – which will save you a huge amount in the long run.
Use your house to earn extra.
If you have an extra room or space in your house, you can have it rented out. Any income that you will generate can go to your credit card debt payments. This will allow you to pay more than the minimum – thus shortening your payment terms. You do not have to worry about paying too much interest because every payment can cover more of the principal balance. You have a lot of options before you. AirBNB is one. Or you can get a roommate and have them pay you for rent. Of course, it does not even have to be a person renting out. You can use your garage or basement for storage. You can advertise it as a storage rental. People can pay you on a monthly basis for this. Even after you pay off your credit card, you can continue earning from your house. Eventually, this move might even allow you to retire early – or cut back on your work.
Drastically cut back on expenses.
Speaking of cutting back, that is the third thing that you can do. While this does not directly involve your house, it does involve your household budget. If you do not want to sacrifice your house, then you need to make several sacrifices on your budget. You can choose to stop buying clothes or limit it to special occasions only. You can choose not to celebrate birthdays for a couple of years. It really depends on what you had been spending on in the past. If you travel regularly, you may want to cut back on that as well. You need to keep yourself from the temptation of overspending because all the extra money you can get from your savings will go to your credit card debt payments.
How too much credit card debt can affect your life
If you think that putting your home on the line is not worth it, think again. Technically, converting your unsecured loan into a secured loan should not be your first option because of the danger of losing your collateral. However, if your unsecured debt is worth $100,000, you can certainly make an exception.
NFCC.org, in the latest study, revealed that one out of three adults admitted to carrying over a balance each month. In fact, 1 out of 10 said that they roll over more than $2,500 each month. This is alarming because the high-interest rate of credit cards can quickly accumulate and leave them in more debt than when they started. Not only that, credit card debt – and a huge one at that can have the following effect on your life.
Keeps you from investing in your future. A $100,000 debt means you have a huge monthly payment. That means a huge part of your income is going to the interest rate of your cards. Instead of using it to invest in your future, you are actually making your creditors rich.
Puts a strain in your relationship.
Another disadvantage of having so much credit card debt is it can make things stressful between couples. It is hard to deal with the debt if you are responsible for it. But it is harder if you have to deal with the debt of a loved one. To make sacrifices for someone else’s mistake is hard to swallow – even if you love that person. While you may agree to help them, it still puts a strain the relationship.
Increases your stress level.
Thinking about the huge debt payments to be paid on top of the basic necessities can be stressful. This is especially true if you had been making payments and you see that the progress is quite slow. You will never really stop worrying about how you will pay off the next billing.
Makes you feel guilty about enjoying simple pleasures.
Finally, it will also make you feel a sense of guilt every time you try to enjoy your money. When you buy a new pair of jeans, even if you really need it, there will always be a feeling of guilt because you know that you should prioritize your debt payments.
You need to avoid incurring too much debt because of all these reasons. Here is a video from National Debt Relief to discuss the 6 usual reason why you accumulate too much credit card debt.
Common questions about credit card debt
Question: How much credit card debt is acceptable?
Answer: Ideally, your debt balance should only be 30% of your credit limit. Any higher than that can affect your credit score. If you have a lot of other debts, you may have to lower it some more.
Question: Who’s responsible for your credit card debt?
Answer: Regardless of the situation that forced you to use your credit card for expenses, the only one responsible for the debt is you. As long as the name on the credit card is yours, then it is your responsibility to pay it back. In case there is an unauthorized transaction, you can dispute that entry as soon as possible to avoid being held responsible for it.
Question: How can credit card debt affect your credit score?
Answer: If you let your credit card debt go beyond 30% of your credit limit, it can affect your credit score. Not only that, it can also lead you to miss out on payments – if your debt gets too high. Your payment behavior has a huge effect on your score too.
Question: Is it possible to transfer credit card debt?
Answer: You can transfer your credit card debt – but you have to know where you can transfer it. There are balance transfer cards that are offered at a 0% or very low interest rate for a period. You can transfer the balance from your old card and then make aggressive payments during the introductory period. With the interest out of the way, your payments will cover the principal debt – this significantly lowering your balance.
Question: What is credit card debt relief?
Answer: It is any program that will help you get out of debt. You have a lot of options before you: debt consolidation loan, debt management, credit counseling, debt settlement and bankruptcy. You have to choose based on your ability to pay it back.