Credit Card Debt
How to Get Out of Credit Card Debt – Let Me Count the Ways
When your credit card bill (s) come in, do you wonder how you will be able to make even the minimum payment? Does it seem like the balances on those cards never goes down? You’re not alone.
As long as you continue to pay just the minimum payment called for, you’ll be paying on those cards for 20 years or more. We’ll show you how to get out of credit card debt and stay out.
Credit cards used wisely and paid in full each month, can be a big help. But for many, the temptation to buy things you can’t afford, is too great, and soon the card is maxed out, and so is the ability to repay.
If you’re serious about eliminating credit card debt, then read on. It will take serious planning, a lot of discipline, and sacrifices to do this. The first thing that you must do is to know exactly what you have to deal with.
Make a detailed list – Gather all of your credit card statements and make a columnar listing for each one. Name of card, interest rate, balance, monthly payment, and approved limit. After that is done, and only then, move on to the second step.
Put all of your credit cards in a safe place at home and don’t carry them with you. The temptation to use them to buy an impulse item can ruin all your plans.
Create a budget – Now comes the dreaded “B” word. You absolutely must create a workable budget if you want to learn how to get out of credit card debt. This needs to be done in as much detail as required to see where your money goes.
There are free budgeting software packages available if you need one, or you can use a spreadsheet. Just be sure not to overlook anything. Additional cash needs to be found that can be applied to credit card balances & this is how to get out of credit card debt.
Remember, you may have to sacrifice until your credit cards are paid off. A good place to start is your cable TV. Cut back on that as well as entertainment, eating out, etc. The goal is to free up as much cash as possible that can be used to reduce those credit card bills.
If your budget is tight, and not much cash is available, a more drastic approach might be needed. If possible, an additional part time job may be able to generate more net cash. This may only be needed temporarily until your cards are paid off. Yes, I’ve done this and it’s not easy, but it’s how to get out of credit card debt fast.
Negotiate a lower interest rate – Call each of your credit card issuers and request a lower interest rate. Be truthful and polite, and quite often, they will lower your rate by 1% or 2%. It might not seem like much, but each cut can mean several hundreds of dollars in savings each year.
As long as your credit score is still respectable, around 730, and you’ve been making your payments on time, there’s a good chance of a rate cut.
A balance transfer – If your credit score hasn’t tanked, transferring a card with a high balance to another card issuer might make sense. On these types of transfers, the new issuer will often times offer 0% interest for 12 to 18 months.
Be very careful though, because as soon as the free introductory rate period ends, their interest rate will jump to the market rate. If you still have a balance on that transfer, it could cost you dearly.
You need to be sure you can have that transfer balance paid off before the free rate period ends. Also, do not make any new purchases on the balance transfer card until the original amount is paid in full.
Decide on a payoff plan – There are several schools of thought on choosing a payoff plan. Some say to pick the credit card with the highest interest rate and apply all extra cash there, while paying the minimum payment on your other cards.
This method is usually the fastest way you know on how to get out of credit card debt, and also the most cost effective. Once you have the highest interest rate card repaid, then you can apply all extra cash to the next highest rate card.
Another method is to apply all extra cash to the credit card with the lowest balance while still paying the minimum payment on the other cards. What this does is to give you more motivation as you see a card being paid off.
A third strategy isn’t mentioned often, but it’s for those who want to increase their credit score. In the detailed list, there is a column for the approved limit for each card. If you divide the balance on the card by the approved limit, the result will be the utilization rate.
Credit bureaus make this calculation and it is one of the factors used to establish your credit score. Generally, if the utilization rate on a card exceeds 20%, your credit score may be dinged.
Using this method of repayment, you would select the credit card with the highest utilization rate and apply the extra cash there while paying the minimum payment on the other credit cards.
Is anyone confused yet? Don’t be overly concerned with all of these terms. Just select a way to repay your cards that you know you can follow and one that will work for you. The important thing to remember, is to start doing it now and don’t wait.
Debt consolidation – While we don’t usually recommend this method, it may be a way for you to combine all of your credit card balances and repay them with a debt consolidation loan. If you can get a decent interest rate and a term where you can comfortably handle the monthly payment, it may be worth it.
Just be sure you don’t start using the cards again for other purchases. And, whatever method you choose to get rid of credit card debt, when the cards are paid off, DO NOT cancel them. This will have a negative effect on your credit score.
Make payments often – Don’t wait until your monthly credit card bill comes in to make a payment. As you get extra cash during the month, send it in then. Credit card issuers calculate interest on a daily basis, so making interim payments during the month reduces the balance on the card and saves you money.
Cash is your friend – As you’re trying to get rid of this bad debt, put your credit cards away and don’t carry them with you. Get used to the fact that you’ll be using cash for your purchases. Eventually, you should be in a position to enjoy debt-free living. I highly recommend it!
You can see how to get out of credit card debt, but don’t get discouraged if it takes a little longer than you expected. Focus on your long-term goal of being rid of credit card debt once and for all. Many others have done it and so can you.