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Drowning in Credit Card Debt? Start Saving Yourself Today

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Sometimes your spending spirals out of control. Once you realize that you've lost control of your debt, you need a plan of action to get your finances back on track. No matter what situation you're in, the relief of a debt-free life is a feasible goal. Take these simple steps to assess and then improve your personal finances.

Be Realistic

If you've been burying your head in the sand, it's time to face facts. "A lot of people will say they've got a certain amount of debt — $9,000, let's say — when in reality, it's $11,000 or $14,000," Cate Williams, Vice President of Financial Literacy for Money Management International, told CreditCards.com. She's right, of course; it's impossible to hit your target if you don't know what you're aiming for.

Action step: Write down your debts, including the interest rate, on every card you have.

Pick Up the Phone

Speaking of those interest rates, getting them lowered can be as simple as picking up the phone. Get on the horn, as they say, and ask nicely. Even a reduction by a point or two can earn you big savings.

Action step: Here's a script for exactly what to stay on the phone with credit card customer service.

Pick Your Strategy

Paying off credit card debt is not a game of chance. You'll need a strategy to lessen the financial burden you're carrying month to month. What are your options? Think of snow:

  • The Avalanche Method: You pay off your highest interest card first, erasing your debt as quickly and efficiently as possible. With this method, you'll save hundreds or even thousands on interest charges in the long run. The downside is that it's arguably the most painful to execute. Action step: Make minimum payments on all of your cards except the one with the highest APR. For the card account with the highest APR, pay as much as you can afford. When that card is paid off, apply that same amount to the card with the next highest interest rate.
  • The Snowball Method: What the avalanche saves you in money, the snowball saves you in morale. What this method offers is a psychological advantage. If paying off the smallest balance first will give you the confidence and headwind to carry out your debt payments, then this method may be for you. Action step: Make the minimum payments on all your accounts except the one with the smallest balance. For the card with the lowest balance, pay as much as you can afford. When that card is down to zero, repeat the process by paying the same amount to the card with the next-lowest balance.
  • The Blizzard Method: You combine the best of both strategies by paying off the smallest balance first and then moving on to wipe out the highest-interest balance next. Combine the best of both, and you've got a blizzard.

"The avalanche saves the most money, but some folks prefer a quick win with the snowball method," Beverly Harzog, author of The Debt Escape Plan, tells Credit Karma. "The blizzard combines both — you get the emotional boost and then you can save money by using the avalanche."

Transfer Your Debt to a 0% Interest Card

You may be able to tackle your debt with no interest at all by transferring a high-interest debt to a single card using a balance transfer. Many balance transfer cards allow you to pay 0 percent interest on your balance for a set amount of time, allowing you to pay more toward your principal and reduce the overall amount of time it'll take you to wipe out your debt.

Action step: Check out NerdWallet to see what the current best cards are.

Make a Budget

You need to figure out where your money is going — aka how you got into debt in the first place. Harzog, who paid off more than $20,000 of her credit card debt, says it takes persistence, self-discipline, and "a darned good budget."

Action step: Sign up for Mint.com or You Need a Budget to help you assess your spending and set up a plan.

Cut Back

Remember the cabbage soup diet? Remember how after three days you were ready to scarf a large supreme pizza? The same principle is at play with living on a budget and paying down debts. An extreme strategy with zero flexibility could quickly activate your desire to rebel and spend more than you can afford, putting you right back where you started.

"Cutting back can be more effective than cutting out," Gail Cunningham, the former spokeswoman for the National Foundation for Credit Counseling, told CreditCards.com. "It's hard to adjust your lifestyle too dramatically, and often, little adjustments can add up to big savings."

Instead of making a No Dining Out rule, limit restaurant visits to once per week and cap your drinks at two. Instead of cutting the cable cord altogether, cut out the premium channels; don't go without heat, but try lowering the thermostat by a degree or two.

Action step: Write down three ways you can cut back on some of your splurges and downgrade or cancel some of your services starting today.

Put Your Credit Cards on Ice

We mean that literally. Put your credit cards in a cup or bowl of water and place it in the freezer. You'll still have the card(s) for emergencies, but they won't be in your wallet. Clear any stored credit card data off your computer, too.

Have a Smart Social Life

Derek Sall paid off $116,000 worth of debt before age 30 when he stopped trying to keep up with his friends, especially the luxury-filled highlight reel social media versions of their lives.

"The best tip I can give is just live your own life," Sall told CNBC. "The best way to just live simply and be content is just to turn it all off and hardly pay attention to it at all. Because that's what gets people in the most trouble. They see 'Oh, my friend went on this great vacation, and I wish we could do that!'"

Action step: If you need a digital social media detox to limit the visual envy and distractions, delete the apps off your phone.

Stay Focused

Remember why you're doing this. Will paying off your credit card debt allow you to save for a down payment on a house or stop panicking when you open the mailbox?

Action plan: Write your goals down and tack them to the fridge or bathroom mirror. Put a picture in your wallet of your dream house or something that represents financial peace to you. Join a money-saving community on Facebook or post regularly to forums where you can vent, be motivated, and remember you're not the only one in your position.

Keep Healthy Financial Habits

As you pay off your debts, think about healthy spending and saving habits. In particular, practice differentiating between wants and needs. Food and shelter are needs; bills and emergency funds are, too.

But wants are those ads you see on Instagram, a $14 French martini, a new spring blouse. When it comes to spending, make sure your needs are taking precedence over your wants.

Action step: You made that budget. Stick to it.

"Staying out of debt isn't a big mystery," Regina Blackwell, a certified budget counselor at credit counseling service Transformance, tells Credit Karma. "Account for your money. Live within your means. Don't spend what you don't have. After becoming debt-free, apply the lessons you've learned and work toward the establishment of healthy financial habits."

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The Easiest Way to Get Out of Tax Debt

Tax Relief

Tax debt can become a major source of stress. Wouldn't it be great to just make one payment and have all your tax debt disappear?

With an offer in compromise (OIC), that's actually possible. Whether you have major debt, are just getting started in your career, or are in another situation that has made it difficult for you to pay your tax liabilities, an OIC might be a great option to help you get back on track.

Pirsch Law

What is an OIC?

The IRS's website describes an OIC as an: "agreement between a taxpayer and the Internal Revenue Service that settles a taxpayer's tax liabilities for less than the full amount owed." Essentially, if an individual simply cannot pay their debt to the IRS, there is little chance of them being able to pay in the near future, and they don't own any significant property, they can offer the IRS a percentage of the money they owe, and if the IRS accepts, the individual's debt is settled.

However, taxpayers who can pay the liabilities through an installments or other means, generally won't qualify for an OIC. For an individual to qualify for an OIC, the taxpayer must have filed all past tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.

Who Qualifies for an OIC?

While this might sound like a very appealing way to resolve your debt, there are important stipulations to keep in mind. The IRS isn't going to accept any amount of money in exchange for waving your debt and generally won't accept an OIC unless the amount proposed is at least equal to the reasonable collection potential (RCP). The RCP is the combined value of the taxpayer's assets, such as real estate, automobiles, bank accounts, and other property. The RCP also includes anticipated future income.

Additionally, there are three reasons that the IRS would accept an OIC.

  1. Doubt as to liability. This is when there is a credible reason to believe that an individual's tax debt does not actually exist or is not as high as the IRS believes.
  2. Doubt as to collectibility. This occurs when a taxpayer's income and combined assets don't add up to the full amount of the tax debt.
  3. Effective tax administration. This is when there's no doubt that the tax debt is owed and that the full amount can be collected, but that doing so would economically cripple the taxpayer irrevocably.
If you think you may qualify, you can visit the IRS's page on OICs to learn how to apply. While this debt solution may only work for some, it's important to know your options when dealing with debt of any kind.


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Learn About the True Cost of Owning Pets

Photo: Yerlin Matu

Dogs, cats, hamsters, fish, parakeets, horses—the world loves pets.

They're our best friends and our better halves. But while they come with a lot of love, they also come with a surprisingly high price tag. Upfront fees plus the annual costs of caring for an animal add up to more than you might expect. What are some of the expenses you can expect to pay for popular pets and how high can the costs be?

What's not to love?Photo: Paul Hanaoka

Initial costs

You can purchase dogs and cats from breeders and pet stores or you can adopt or rescue from shelters. Adoption fees range from $75 to $200 for cats and dogs, but buying from a breeder will likely be much more expensive. Countless stores sell fish for $2 or, for more exotic species, upwards of $50. Hamsters can cost as little as $10 from a store, while birds can range from $20 to $400.

For dogs and cats, add to these fees the cost of spaying or neutering. It might be included in the fees for a rescue pet, but a purchased pet's procedure could cost up to $200. Another upfront cost for dog owners is licensing—most states require dogs over the age of one year to be licensed. A lifetime license for a spayed or neutered dog costs around $35.

Bringing a new pet home also requires equipment. Dogs and cats will need crates, beds, litter boxes and more. Small pets, like birds and hamsters, will need cages, bedding, and food. Of course, there are plenty of extras that are just as important: your puppy or kitten will look for toys, treats and comfort objects like blankets. You'll need hygiene equipment too, such as brushes, shampoo, toothpaste, and toothbrushes.

While small pets don't necessarily need it, larger pets, like dogs and cats, should go to the veterinarian for an initial exam. The vet might administer vaccinations and recommend medicine to keep your pet healthy and safe. Common medicines include gels for flea and tick protection, supplements to prevent heartworms and, sometimes, vitamins. All of these will become ongoing expenses.

Depending on your living situation, you might face new deposits required by a landlord or an increase in rent. Pet deposits can be refundable or nonrefundable and as little as $200 or as much as $1,000. "Pet rent," as its called, usually replaces some or all of the deposit with a monthly fee ($35, perhaps) that basically acts as your pet's rent payment. One is not necessarily worse than the other—it depends on the costs and situation.

Caring for a pet can be costly Photo: Autri Taheri

Ongoing expenses

All of those upfront costs might stack up to a sizable sum but the price continues to increase in the form of ongoing expenses. You want your pet to have the happiest, most comfortable life possible, so of course, you're going to buy the best quality food and most entertaining toys. Shampoo, toothpaste, cat litter, and other hygiene products will add a bit to your regular grocery bill. Flea and tick, allergy, and heartworm medicines might add up to about $20 per month.

Regular vet visits can become expensive, especially if anything more than a checkup is needed. You can expect a bill anywhere between $50 and $500 for various shots and procedures. Dental cleanings tend to be expensive as well, and any prescriptions will be close to what you'd expect to pay for your own medicine. A pet owner can purchase pet insurance for their four-legged family member as a precaution against emergency medical treatments that might otherwise hit hard, financially.

The price is worth every penny Photo: Avi Richards

One more consideration is travel. It's obviously more difficult to travel with a pet but it's also difficult to arrange for pet care while you're away from them. A dog walker might charge $20 per walk, a cat sitter who's not family will charge for feeding and changing litter. A pet boarding house has its own costs associated with it. On the other hand, pet-friendly hotels sometimes charge large fees to let your pet stay with you. Others, though, are letting pets in for free.

There are many costs—high and low, short-term and long-term—of owning a pet. While that soft-hearted voice inside you might think, anything's worth that cuddly companion, it's important to consider and plan for the expenses before jumping into a relationship. You owe it to that future pet to be prepared to give them the best life possible.


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