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The average individual carries $7,000.00 in credit card debt; however, many people owe much more and are still using their credit cards! It's very easy to become burdened and somewhat of a slave--working to pay off credit cards. Many people feel that they are "ahead of the game" if they pay the minimum payment due for their credit cards. This is the worst scenario. The more you charge and pay only the minimum payment, the further in debt you become, and you will never be able to pay the entire debt. Let's look at the basics of how to reduce your overall credit card debt, as well as where to turn when you more than over your head--drowning, and need help.
The first step is to reduce your available credit. This is what got you into trouble in the first place! Reducing your available credit begins with your finding out exactly how much you own on each card, and what the APR (annual percentage rate) is. The APRs can range from 5.9 percent to 24.00Percent! Department store cards tend to carry higher interest rates than major credit cards. However, if you had bad credit or no credit when you applied for a major credit card, you were considered "High Risk" and therefore most likely issued a card with a very high interest rate. Once you have written down the amounts owed and the interest rates, the next step is to find out which card carries the lowest APR.
If you have credit left on the low APR card, and the card has a balance transfer option, you can consider transferring the higher APR cards to the lower. This is only a temporary solution, but it is one that can save you thousands of dollars in interest and annual membership fees. Transferring balances is only beneficial if you: 1.) Cut the cards once the balance transfer has occurred, and 2.) Close the account. Many people transfer balances from credit card to credit card every month. This is one of the worst things that you can do, as you are not paying off any debts; you are merely moving the money. Once the account is closed, it's gone. Minimizing your credit lines is the only way to stop future debt from occurring.
Transferring balances to one card gives you the benefit of making one payment as opposed to multiple payments. This will help you when you are budgeting because you know exactly when the bill is due, rather than having multiple bills that arrive each month, with several due dates. The next step is budgeting. The only way to reduce what you owe is to pay the bill on time, and to pay more than the minimum.
You will need to complete a weekly budget in which all of your expenses, your needs and your wants are broken down. Many people have tried on various occasions to set a budget, and then stop following the plan because they did not include their "wants" in their budget plan. We always write down the amounts of our rents, mortgages, phone bills, and student loans, but we forget to include other amounts that we KNOW we will spend. Examples are gas, movies, food, insurance, clothing, on-line fees and so forth. No one can be expected to eliminate entertainment (movies, concerts, etc.) or an occasional meal out, so don't kid yourself by saying "I just won’t eat out"--you won't say that when your stomach is growling. Be realistic.
When preparing your budget, you want to pay as much over the minimum monthly credit card payment as you can possibly afford. This is far easier to do on a weekly budgeting plan than a monthly plan. Many people mistakenly think that they should only pay a credit card bill once a month--when the bill comes. This is not true. You can pay as many times a month as you like. When you have written your weekly budget, which includes your weekly credit card payment, mail your check. Weekly payments will reduce the amount of overall interest on your credit cards. Credit cards accrue interest daily, not monthly, therefore every penny that you can afford to pay, PAY! It is beneficial in 2 ways; one, your overall interest rate will be charged for a lower balance, since your balance is actually going down, and you are more likely to be able to afford smaller weekly payments vs. one large monthly payment. It's far easier to budget 1/3 of a weekly paycheck for credit cards once a week, than it is to budget 100% of a weekly paycheck once a month.
If you are in serious credit card debt and are late on payments and have creditors calling, there is help available. One option is The Consumer Counseling Center of America (CCCA). CCCA is one of many non-profit organizations with branches all over the United States. The organization helps people to get out of unsecured debt: credit cards, personal loans, and medical bills. CCCA is very different from a consolidation loan agency in that CCCA does not make loans; they simply consolidate your debt for you, and negotiate your interest rates with your creditors.
The program is works like this: CCCA assigns a credit counselor to your case. The counselor sits down with you and prepares a budget. The counselor totals your debt and then negotiates with your creditors to either reduce or eliminate interest all together! This can save you anywhere from 50% to 100% in interest alone. You pay CCCA a weekly or monthly payment, and CCCA makes the payment to your creditors. Your participation in CCCA or a similar non-profit program also helps you to restore your sanity as well as your credit rating by:
*Bringing past due accounts up to date
*Stopping creditor harassment
*Keeping payments current
*Settlement of seriously overdue and delinquent accounts
*Over-the-limit and late fees are absorbed
Such a program will only be beneficial to you if you close your credit card accounts. You cannot consolidate and continue to use your credit cards. It is acceptable to keep one credit card for emergencies, but the card should have a low credit limit, to prevent you from running the card up again, and the card should have a low interest rate. You can visit the web site of CCCA at www.consumercounsleing.org, or you can look in the Yellow Pages of your phone book under "Debt Consolidators" for a similar non-profit credit counseling and debt consolidation agency.
Many people try to take out a debt consolidation loan from a bank, or other financial institution, to pay off credit cards, and are denied. This only makes sense, as your credit cards are not secured with any property, and since you are having trouble making the payments on the credit cards, the bank views you as a high-risk applicant. Many banks and finance companies will give you a debt consolidation loan if you have the property to secure it. This must be well thought out because if you put your home or other property up as collateral, and then you are unable to make the scheduled and agreed payments, you face foreclosure and/or repossession. This is a huge worry, and an unnecessary one, since you can consolidate through a non-profit organization and not have to put up any collateral.
Be careful of credit repair scams and credit "doctors" that claim to "repair your credit" for a fee. No one can repair credit. Negative information such as charge-offs, late pay, slow pay, abandonment and no pays can (and will) stay on your credit report for 7 years. There is no person or company that can remove this information from your credit report, except for the lenders who filed the derogatory information. A credit report cannot be changed or altered, however, bringing your accounts up to date restores your credit. You are the only person who can restore your credit, and there is never a fee for restoring your own credit.
If you budget accordingly and can make the payments or your own, or if your choose to go with a non-profit debt consolidator, be sure that you never again allow yourself to become a slave to your debts! Always pay by cash or check. If you must make a credit card purchase, write a check for the amount and send it to the credit card company the same day.
Once you are debtless, you'll be amazed at how much you can afford by paying for items with cash!
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