Step Out Of Credit Card Debt

Are you stressed out over credit card debt? Don’t let credit card debt bring you down.

It may help to know that you’re not alone.  On average, American households carry a deficit of almost $10,000 each. This average keeps increasing from one year to the next.  Getting out of debt has no magical solution. However, these practical steps can help you resolve your credit card debt and understand debt consolidation options. Let’s start by reviewing your current debt situation.

Image/bykst via pixabay

  1.  What Is The Root Of The Problem

Did you max out your card to meet unexpected emergencies or did you splurge on more occasions than you should? Either way, you were not prepared to meet the risks and consequences of credit card debt.  Most people who get into credit card debt also don’t save on a regular basis typically due to living beyond their means. It even seems to be the American way. Social scientists call it “Affluenza.” When you have one gadget you want another, and when you’re bored or feeling blah, shopping perks you up. There seems to be no end to what you want. However, the buck stops somewhere, and that’s when you pause to reflect on how you got into that big mess.  Carrying balances on several credit cards with high interest rates, or living on a payday to payday cash advance loan begins to eat away at your financial future. Feeling stuck and guilty isn’t going to help you through the hurdles. Lift up your chin, tighten your belt, and make some changes to your lifestyle.

  1.  Action Plan – Get Organized

On a ledger, write down all your credit card balances, fees, and interest rates. Organize your credit card accounts from the highest interest rate to the lowest.  Include the due dates and the minimum payments allowed. Figure out how much money you need to pay them all off, and how much money you need to pay on a monthly schedule.  Notice how much more you’ll end up paying if you only pay the minimum amount due instead of the entire balance.

  1.  Put On Your Budget

photo/Gerd Altmann

If you can’t come up with a lump sum to pay the balance off completely, then you’ll need to include the payments into your overall budget.  You already know you must pay more than the minimum balance to get the debt low enough to resolve, so increase the payment amount each month as high as you can.  Your budget should be one that includes occasional dining out, some home entertainment, and comfortable living. It’s not about going without the basics of comfort, like AC and cable.  However, instead of getting the premium cable packages, get the basic one, and instead of buying unnecessary items, reuse what you have. Use coupons when shopping for groceries and other goods. Walk more, drive less. Be realistic when setting up your monthly budget.

Stick to your budget, and you’ll always be grateful for knowing how to live within your means.  Whether you have a low, moderate or high income, living within your means is a skill that will help you grow your wealth.

  1. Strategize

You know your situation better than anyone. If you followed the first two steps, you have a clear idea of how much you owe and how long it will take you to repay under the current terms. Weigh your options to compare strategies and choose the best for you. Once you have organized your debt from highest to lowest interest rate, calculate how long it will take you to pay off the balance on the first card.

Transferring your balance to a 0% interest rate card is an option well worth considering.  The only problem with this solution is that the APR will jump sky high after the first 6 to 12 months. If you cannot make good on the debt during this time, the interest rates on the card will hike to the max, and you’ll be stuck in a high-interest ride.

Continue making at least the minimum amount due on the rest of your credit card accounts.

Another payment strategy calls for paying off the smallest debt first regardless of interest.  It’s faster to pay off small amounts. Once the small card balances are paid, avoid charging anything on them until you have paid them all off. Every time you have a positive balance in your favor, your credit score will slightly improve. Keep in mind the 20/80 rule. Owe 20% or less than your credit limit at any given time for a favorable debt to credit ratio.

  1. Negotiate Lower Interest Rates

It’s possible to do! Call each one of your creditors and ask them to reduce the interest rate on your account. It might surprise you to know that an overwhelming 75% of people who ask for lower interest rates get them. Negotiate the terms as much as you need in terms of time, rates, and even offer a settlement. If you are unable to make payments, the best option is to offer to pay a reduced amount.  Instead of defaulting and writing off the debt, your creditors will settle for less than the balance owed and remove penalties, if asked. Be consistent and polite.

  1. Autopay

One of the most common excuses people give for having lower credit scores is making late payments consistently. Things happen, and when they do, communicate your situation to your lender. They will agree to skip a payment without penalizing you or put you in contact with a debt resolution center where you can make new arrangements and agreements.

Auto pay avoids this annoying bad habit altogether. The only problem with his is that you must remember to keep enough funds in your checking account to meet the charges made on auto pay.  Avoid having to pay penalties and fees. In the case when the funds are not in your account, call your credit card customer service agent and ask them to move the payment to the following week or month.

  1.  Stop Using Your Card

Making charges on your credit card while your balance hasn’t reached 0 is not recommended.  Wait until you’re clear of debt on all your cards before making any more purchases on it. To avoid temptation, leave the card at home when you go out.

  1.  Keep Your Card Open

Once you pay the balance on a high-interest card, keep it open. Even if your card has a high-interest rate, it can help you increase your debt to credit limit ratio, by keeping it open.  Meanwhile, continue making negotiation attempts to lower the interest on the card. Once you have paid off all the balances on all your cards, you will feel much relieved. Don’t make the same mistake twice. Save for emergencies, invest in your retirement, and pay off the balance on your credit card every month.

Author: Steve Piorro

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