5 Expert Ways to Escape the Debt Trap

Debt can be crippling and really hold you back from living the kind of life you want to live. Check out our expert tips for escaping debt and getting your life back ASAP!

1. Your credit card balance never shrinks.

Struggling with minimum payments each month is common, but it doesn’t have to be.

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If you have multiple cards, try paying off the card with the smallest balance first, then work your way up to the highest, says Seeds of Advice financial planner Susan Bryant. Clearing one card can encourage you to stay on the right track.

“What’s important with this strategy is that rather than just paying the minimum on those cards, you also tack on the amount you were paying towards all the other cards, so you pay those lower balances off faster,” Susan says. Consolidating your debt by transferring all your balances to a single credit card with no interest for 12 months is another smart option, according to Talking Money financial coach Melissa Meagher.

“Not having to pay interest on that original balance will ensure you pay it quicker. However, the zero-interest arrangement only applies to the transferred balance and you’ll be charged the regular interest rate for any new purchases.” Her advice? Cut up any unnecessary cards so you can’t use them!

2. You have a timeshare you can’t get rid of.

While a part-time vacation haven seemed like a good idea, unscrupulous practices have become such an issue the industry has come under scrutiny.

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Timeshare contracts can be difficult to get out of, with high annual fees, 99-year leases, and — in some cases — no death waivers, meaning your debt will eventually be passed on to your children, Susan explains. But it’s not a lost cause.

“In some cases, people have cited ill health, financial difficulty or deception, and successfully extricated themselves, so I’d recommend seeking legal assistance,” she says.

3. You’re close to retiring but haven’t paid off the mortgage.

Gone are the days when a mortgage would be cleared by retirement age. Luckily, you can escape this trap before it’s too late.

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Making extra payments while you’re still working can make a big difference to the balance that’s left when you retire, Melissa says. “Start putting in an extra $50 a week, or consider putting off retirement for a few years so you can get this figure down. But if you’re already at retirement age, you may want to consider using your 401K to pay off your mortgage,” she says. Another option is assessing whether you’d be better off selling up.

“I’ve had some clients enjoy success by downsizing,” Susan says. Or you could look at ways to bring in income to make extra payments. “Other clients have rented out spare rooms or taken on part-time work,” she adds. If you do take on additional work, putting your entire wage on your mortgage will further chip away at it.

4. You can’t stay on top of your bills.

Keeping the wolves from the door is a common fear, and it’s easy to feel overwhelmed by household bills.

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One of the most important things you can do in this stressful situation is to smooth out your bill cycles, Melissa says. “I ask my clients to make a list of their fixed costs for the next 12 months and divide these costs by 12 monthly amounts. That way they always know how much the payments are going to be in order to be better prepared to meet them,” she explains.

For anyone who’s already behind, it’s a little trickier. “Start by writing a letter to the person or company that’s trying to collect a debt,” Melissa says. “You need to explain your situation and ask to only be contacted in writing — if you’re living in fear about answering the door or picking up the phone, it can be incredibly stressful, and putting this communication in place can buy you some time as well as helping to ease some of that stress.”

If you are in financial trouble, consider seeking assistance from a financial counselor. “You can find one through Lifeline or The Salvation Army and they will offer their services free of charge, which can help you take your first steps in the right direction,” Melissa says.

5. You’re paying off your family’s debts.

Although no official figures are available, grandparents are assisting their children and grandchildren with major costs such as property purchase and school fees.

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The solution here is as simple as saying no, insists Susan, who has noticed a growing trend whereby her clients are struggling while their children lead “champagne lifestyles.” “If you go cold turkey on subsidizing their lifestyles, you’ll be doing them a favor by not only teaching them to become more resourceful but having more of an estate to leave to them further down the line,” she says.

“How can you look after anyone else if you don’t look after yourself first?” Speak to a financial counselor about how best to sever your financial ties and tell your family of your intention.