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How to Get Out of Debt

7 min read

Posted on Aug 30, 2021

Woman managing debt

It’s no secret—Americans really know how to get into debt. U.S. household debt climbed to $13.95 trillion in the third quarter of 2019, up from $13.54 trillion the prior year. The numbers are even more staggering on a personal level. The average family with credit card debt owes $8,500, whereas an average household with auto loans owes about $27,800, student loans average $46,800, and average mortgage debt is around $189,600.

Fewer Americans understand how to get out of debt. While it starts with willpower, there are proven financial strategies to consider. First Hawaiian Bank offers a variety of tools and resources to help you better understand and improve your financial wellness.

Make the Commitment

If you’re carrying a lot of debt, be prepared to put about 15% of your income toward reducing it. Making only minimum payments on your credit cards and other loans will cause interest charges to pile up, meaning it will be difficult to break the cycle and get out of debt.

Find assistance. Use online tools and calculators to help you figure out how much money you are spending and using to pay off debt. First Hawaiian Bank’s free Debt Consolidation Calculator will help you understand how rolling your debt into a single loan can save you money in the long run. You may even consider talking to a personal banker or financial advisor at First Hawaiian Bank to help develop a plan that’s right for you.

Tighten the belt. To free up money for debt payments, you’ll need to reduce spending. Come up with a monthly budget, put it in writing, and stick to it. Cut back where you can by cooking rather than dining out. Cancel cable and opt for a more cost-effective streaming service. Bargain hunt for great deals on discount sites like Groupon and Slickdeals. Small adjustments to your spending habits can add up over time.

Seek bigger savings. Evaluate your insurance policies to see if you can find less-expensive coverage that still meets your needs. Talk to a financial advisor or insurance agent to help you find affordable alternatives to your home, auto, life and long-term care, and health insurance policies. 


Use Credit Cards Wisely

Credit cards offer convenient buying power and can earn you valuable rewards. Problems arise, however, if you charge too much and carry a balance, causing interest to accumulate.

Set priorities. If you have multiple credit cards, identify the one with the highest interest rate. Pay that card down as aggressively as possible while making minimum payments on the others. After the first card is paid off, allocate your largest payment to the card with the second-highest interest rate, and so on, until you eliminate your debt. 

Look for 0% interest rates. Another technique is to apply for a new credit card that offers a promotional 0% interest rate, usually for a period of 12 to 24 months, then transfer all outstanding balances to the new card. This will buy you time to pay down the balance without accruing additional interest charges. 


Be Strategic About Your Loans

Buying a home, getting a new car, sending your children to college—these can all be worthwhile investments, and borrowing money is a great way to make them happen. While loans can afford you the opportunity to make major expenditures, keeping up with the payments can be a challenge.

Make mortgages manageable. Most homes are financed with 15- or 30-year mortgages, but you’re not obligated to keep the original loan that long. If interest rates drop, consider refinancing. Even a 1% rate reduction can trim payments on a $200,000 mortgage by well over $100 per month. If rates haven’t dipped, switching to a loan with a longer payoff period will reduce monthly payments and free up cash to pay off shorter-term debt. 

Shift gears. Consumers often drive away from an auto dealer with a vehicle they love and a loan they don’t. The solution is to trade in that unsatisfactory loan on your new car, motorcycle, or RV. Refinancing to a lower interest rate or longer repayment period will reduce monthly payments and minimize stress on your household budget. 

Simplify student loans. Student debt can be crippling. One solution is to consolidate all those years of school loans into a single new loan to reduce overall monthly payments and simplify your finances. College grads with federal loans can apply for a Direct Consolidation Loan

Get it together. Debt consolidation is an effective tactic. First Hawaiian Bank offers great rates on personal loans, home equity loans, and lines of credit. You can use money from those sources to pay off credit card balances, medical bills, and even school loans, bringing your debt under control.

Beware of debt-relief companies. Many debt-relief companies can be scams. In November 2019, a student loan debt-relief scheme siphoned millions out of former students’ pockets, according to the Federal Trade Commission. Contact your state Attorney General’s Office or consumer protection department to vet out debt-relief companies before giving them your business. 

Developing a smart strategy to pay down your debt and consolidate bills will help you to better manage your finances. Visit any First Hawaiian Bank branch and talk to a personal banker, who can provide a variety of resources to help you understand your options and improve your overall financial health. 

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