On the Road to Debt Freedom
BY LISA SCONTRAS
The new year has arrived surprise, surprise and so have the bills from all your holiday shopping. Remember Black Friday? OK, so you might have overdone it by tipping your credit card balances to redline levels. Time to implement some New Year’s resolve and begin digging yourself out from under all that debt.
“The trick is to manage our debt so that it doesn’t manage us,” says Gayle Pingree, vice president and manager of Consumer Credit Center at First Hawaiian Bank. “And the new year is a good time for a sound plan to explore some realistic options.”
Debt management isn’t as impossible as it may seem. Here are three steps to implementing a plan to control personal debt and three options for getting started.
STEP 1: Start today by evaluating your current situation. 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. “The key to getting out of debt is knowing what you owe and setting a goal to eliminate it or manage it more efficiently.”
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 affordable entertainment. The money that is left is your “disposable income” and what funds are available to pay off debt.
“We can help you with these figures,” Pingree says. “Each of our branches has dedicated personal bankers who are trained to assist with debt management.”
Start a new relationship with your credit to clean up the balance sheets.
STEP 3: Formulate a plan by prioritizing 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. As you put your head down and systematically pay off debt, you’ll start to see progress.
“The average consumer has too many credit cards,” says Pingree. “So as you pay off the high-rate cards, decide which cards you really want to keep. You only really need two cards a favorite one and then a backup card 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 those unable to pay off their 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. “Give your debt payoff plan a kick start by paying off all your other loans and card balances, while at the same time lowering your interest rate and perhaps getting a tax deduction.”
Interest paid on your mortgage is tax deductible, while credit card or other loan interest is not. “For borrowers who have already paid on their mortgage for 10 or 15 years, consider shortening your term from a 30year to a 15-year loan,” adds Pingree. “Fifteen-year mortgage rates are currently less than 3 percent with 2 points.”
OPTION 2: Take out a home equity loan. This is another way to consolidate your credit card payments, school and car loans into one loan. The interest paid on an equity loan will likely be less than on a credit card, and again, is probably tax deductible, providing additional savings, Pingree says.
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. Talk with a personal banker at First Hawaiian Bank to help you on your way to becoming debt-free.