No matter how you look at it, credit card debt is serious and it keeps getting more serious. You do not open your credit card bill every month to discover that your interest rate has magically lowered; you are usually lucky if you do not find that it has increased. Credit card debt is a mounting problem that will continue to grow unless you find a way to reduce it. If you simply ignore it, it will not go away; you will open your mail one day to find a minimum payment beyond what you can afford.
Snowball Your Payments
This method of reducing your credit card debt allows you to build on each credit card you pay off until they are all paid in full. The Dave Ramsey method uses the snowball effect to reduce your debts one at a time. The principle is simply to continue making the minimum payments on all of your credit card debts and choose one at a time to focus on and eliminate.
The snowball is your payment. After you have your lowest card paid in full, you carry that monthly payment to your next highest card. This increases the monthly amount on that card. Continue doing this until all of your credit cards are paid in full.
To start the plan, make a list of your credit card balances and put it in order from lowest to highest, instead of the traditional tactic of listing highest to lowest. Once you have them in order, you start paying them off from lowest to highest.
The Dave Ramsey system provides you with results faster, which in turn gives you the motivation needed to continue paying off the remaining debts. As you pay off one card, you should apply that card’s payment to your next card in line. This will help you pay off your higher debts faster. In order for the system to work, you have to stop using the credit cards before they are paid in full. You cannot use them simply because they have available credit.
The Art of Negotiation
You do not have to be a professional debt planner to negotiate with your credit card company. Negotiation is simply the art of talking with the other party and reaching a mutual agreement. You can do this yourself.
Before you call your credit card company, prepare yourself by using a debt calculator. You can find many of these online. Debt calculators will help you determine how much you can afford to pay each month and how long it will take you to pay your account down. Experiment with different interest rates using the debt calculator. This will give you a starting point when you call your credit card company.
After you have calculated what you are able to pay, you are ready to make the call. You need to be prepared to be patient during this process. When you call, you will have to go through more than one person before you get to the one that has the ability to negotiate. Be adamant that you must speak to someone who can negotiate your debt. If you sound like you are weak, you will have a hard time getting the right person to the phone.
Once you have the right person, explain what you are able to pay and that you want to pay the debt. Stress that you want to pay the debt but that you need assistance due to the economy. Most credit card companies are eager to receive any money they can from consumers.
Once you have an agreement, make sure that you have it in writing. If you send payments without a written agreement, you could find that they are not applied to your account properly. Lastly, never under any circumstance allow them to draft your bank account. Pay them with a check or money order.
Pay More than the Minimum Amount
Pay more than the minimum amount on the highest interest rate credit card. Financial experts at MSN.com recommend paying an additional amount each month on the card with the highest interest rate. Doing this will reduce the debt on the card until it is eliminated. Once you have that card paid in full, start paying more on the card that now has the highest interest rate.
The key is to continue to pay more than the minimum amount up until the card’s balance is eliminated. You should not stop paying above the minimum until the card is paid in full. If you stop before it is paid in full, the interest charges will gradually increase the balance owed and once again become a problem.
If you want to completely eliminate all of your credit card debt as soon as possible, you can use several methods at one time. First, negotiate a payoff with all of your creditors. Once you have done this, you will know exactly how much you need in order to be free from credit card debt. Next, you need a way to pay the full amount owed.
First, if you have a house with equity in it, you can talk to your bank about a home equity loan to pay off your debts. Your interest rate will be much lower than the interest rate on your credit cards, and you shouldn’t have a problem with the payment since you won’t be paying on credit card debt.
If you cannot get a home equity loan, you might want to ask a friend or family member to lend you the money. If they are willing and able to do this, make sure that you draft a contract for repaying the loan. You should make sure they know you are going to pay them in full. You do not want to lose the confidence of friends or family members due to owing them money.
Once you have secured the money to pay off the negotiated credit card debt, make sure you don’t fall back into the same situation. You may be tempted to use the credit cards once they are paid in full. If you are worried about this temptation, cut them up so that you can’t use them. You should have one for use in emergency situations. However, you can put it out of sight and mind so that you don’t reach for it out of convenience.
Stay Debt Free
When all is said and done and you find yourself free of credit card debt, you need to make lifestyle changes to remain debt free. You have to learn to live within your budget. If you can’t pay cash for it, don’t buy it. The one credit card you save should be a last resort financial option, not used for purchases you don’t need.
Staying debt free can be a challenge, especially if you have had a reduction in finances and you are forced to change your lifestyle. However, once you have made some adjustments, you will find that being debt free is a lot easier than dodging bill collectors. The stress relief alone is worth the time you invest in becoming and staying debt free.