What Are Some Suggestions to Follow to Help Cut Credit Card Debt?
You may use your credit card sparingly and make a habit of paying your balance off each month. However, one unexpected bill can leave you with insufficient cash to pay off your card balance, and when that happens your credit card debt starts to mount due to the interest charges. If you become overwhelmed by credit card debt there are certain steps you can take to get your finances back on track.
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Budget
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The first step in reducing credit card debt involves establishing a budget. Write a list of your fixed costs such as your mortgage, taxes, car payment and utility bills and set yourself a reasonable budget for groceries and other unavoidable costs such as gasoline. Review your most recent bank statements to see how much money you spend on discretionary items such as meals at restaurants or movie tickets. Rather than spending money on non-essentials, you can use that cash to pay down your credit card debt. The more you pay towards your debts, the more quickly you'll reduce those debts. Therefore, set yourself a weekly budget so you cover your essential costs but keep your excess cash on hand to pay down your credit cards.
Consolidate
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Many credit cards have high interest rates, but nothing prevents you from shopping around for lower rates. Some companies offer low rates to entice cardholders from other banks. In fact, you can simplify your monthly debt payments by consolidating balances from several accounts onto one new card. Take advantage of low rates by making large monthly payments rather than just making the minimum required payment. Many card issuers charge balance transfer fees, so make sure you understand the terms of the new card before you make the switch. Some people pay off their credit card debts with a home equity loan -- which makes the interest tax deductible -- but when you do that you put your home at risk if you fall behind on your payments. Therefore, try to consolidate debts onto another credit card rather than transferring your debt to your home.
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Negotiate
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If you don't qualify for any more credit cards -- or the balance transfer fees offset the potential savings -- then try to negotiate with your current lenders. Nothing prevents you from asking for an interest rate reduction. If you have a good payment history, but explain that you're having difficult keeping on top of your debts, then your card issuers may agree to lower your rates. Some companies may offer you a settlement that involves the card issuer writing off a portion of your debt if you make a lump sum payment. Only consider such a deal as a last resort because debt settlements cause your credit score to drop. You may find if difficult to obtain future credit if you have a poor credit score.
Prioritize
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If you have several credit cards, you may find that each card issuer charges you a different interest rate. When you make your monthly payments, pay the most money to the card with the highest interest rate since the balance on that card grows at the fastest rate. When you've paid off that card, focus on paying off the card with the second highest rate. Continue to pay down your cards in this manner until you've eventually eliminated your debt.
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References
- Federal Trade Commission; Knee Deep in Debt; February 2011
- Utah State University; Reducing Credit Card Debt; Barbara R Rowe; November 2001
- MSN Money Central; Credit Card Debt: How to Cut a Deal; Liz Pulliam Weston;
- Bankrate.com; Three Ways to Shred Credit Card Debt in Old Age; Steve Bucci; January 2010
