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Prepping for job loss (Part 3): Reduce debt to reduce bills

By Carmen OToole

Interest rates are currently punishing. The average credit card APR hovers over 20%. If you are carrying a balance, you are not just paying back money; you are paying a penalty for being in the past. Debt is a drag coefficient. In a survival scenario, whether it’s a job loss or a medical emergency, monthly debt payments are leaks in your hull. They force you to burn through your savings faster and restrict your options. Eliminating these payments lowers your “Budget Survival Number.” It buys you time. When you owe nothing, you own your options.

The Readiness Audit

Where is your financial agility right now?

  • 🟢 Green: You have zero high interest consumer debt. You pay your credit card balance in full every single month.
  • 🟡 Yellow: You have debt, but you are making more than the minimum payments. You are treading water.
  • 🔴 Red: You are making minimum payments only. Your balances are staying the same or growing due to interest. You feel trapped.

If you are Yellow or Red, pick a strategy below and execute immediately.

Phase 1: The Strategy Selection (Low Stress)

Goal: Pick your weapon. Do not try to do everything at once. Choose the method that fits your psychology.

Option A: The Debt Avalanche (The Mathematician’s Choice)

  • The Logic: This method saves you the most money mathematically.
  • The Action: List debts by Interest Rate (APR) from Highest to Lowest.
  • The Execution: Pay minimums on everything. Attack the card with the Highest Interest Rate with every extra dollar. Once it dies, roll that money to the next highest rate.
  • Best For: Disciplined people who hate inefficiency.

Option B: The Debt Snowball (The Psychologist’s Choice)

  • The Logic: This method builds momentum through quick wins. Championed by experts like Dave Ramsey.
  • The Action: List debts by Balance from Smallest to Largest. (Ignore the interest rate).
  • The Execution: Pay minimums on everything. Attack the Smallest Balance with fury. When it hits $0, you get a dopamine hit. Take that payment and roll it into the next smallest balance.
  • Best For: People who need to see progress fast to stay motivated.

Phase 2: The Strategic Maneuvers (The Trigger)

Goal: Lower the difficulty setting. Reduce the interest rates so your payments actually hurt the principal.

Maneuver 1: The Balance Transfer Move high-interest debt to a 0% APR card.

  • The Play: Apply for a card with a 12–21 month 0% introductory period. Move your debt there.
  • The Trap: ⚠️ The Cliff. You MUST pay off the balance before the 0% period ends. If you don’t, you will be hit with retroactive interest.
  • The Cost: Watch for transfer fees (usually 3-5%). Do the math to ensure it’s worth it.

Maneuver 2: The DIY Consolidation Loan Take a single personal loan to pay off multiple cards.

  • The Play: Go to a local Credit Union or reputable bank. Get a fixed-rate loan (e.g., 10%) to pay off cards (e.g., 24%).
  • The Benefit: One predictable monthly payment. Fixed end date.
  • The Warning: ⚠️ Do NOT use a “Debt Settlement Company.” They will ruin your credit and charge you for it. Do this yourself directly with a lender.

Phase 3: The Direct Approach (In the Thick of It)

Goal: Negotiate better terms immediately.

You have nothing to lose by asking. A 15-minute phone call can save you hundreds of dollars.

The Script:

  1. Call the number on the back of your card.
  2. Say this: “I’ve been a loyal customer for [X] years. I am reviewing my finances and have received offers for lower rates elsewhere. I’d prefer to stay with you, but I need a lower APR to make that work. What can you do for me?”
  3. Why it works: Acquisition costs are high. They want to keep you. If they say no, hang up. You lost nothing.

The “Essential Kit” Checklist

  • The Master List: A spreadsheet listing every debt, its total balance, and its specific APR.
  • The Credit Report: Check your score (free via Credit Karma or annualcreditreport.com) to see if you qualify for transfers/loans.
  • The Phone: Set aside 1 hour to call every creditor to ask for a lower rate.
  • The Scissors: ⚠️ Critical. You cannot dig out of a hole while you are still digging. If you are consolidating debt, you must stop using the cards. Cut them up or freeze them in a block of ice.

The Scenario Planner (Contingencies)

Murphy’s Law Variation 1: I don’t have good enough credit for a loan or balance transfer.

  • The Trap: Feeling hopeless and doing nothing.
  • The Fix: Default to the Debt Snowball (Option B). It requires no approval from a bank. It only requires your effort. Kill the smallest debt first to free up cash flow, then move to the next.

Murphy’s Law Variation 2: I paid off a card, but then I ran the balance back up.

  • The Trap: The “Relapse.” You treated the credit limit like available income.
  • The Fix: You need friction. Remove your card numbers from “Auto-Fill” in your browser and delete them from Amazon/Apple Pay. Make it physically difficult to spend money. If necessary, switch to a cash-only envelope system for discretionary spending.

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