It is easy to let credit card debt become overwhelming. Credit cards are convenient and can be a great tool in managing expenses if used properly, but once the debt becomes more than can be paid off each month they become a burden. Interest charges start adding up making it more difficult to get ahead. Once in this situation, it is important to develop a plan to eliminate the debt and stop paying interest.
Understand How Much Interest Costs
The first step is stop using the card(s) that have a balance on immediately. Then make a list of all the credit cards with balances and interest rates as well as the required minimum payments and the actual amount paid to the account monthly. There are many calculators available online that will calculate the actual cost of the interest that will accumulate overtime if only the minimum is paid.
One site worth using is the Federal Reserve Credit Card Calculator. This site has a simple calculator that shows how much interest will accumulate while paying just the minimum. In addition, effective February 22, 2010 all credit card statements must show the amount of interest that will accumulate on the card if just the minimum amount due is paid. Depending on the interest rate on the card this may seem to be an obscene amount, which makes it obvious why carrying a balance on a credit card is a bad idea.
Develop a Smart Plan to Pay Down Debt
Carrying balances on multiple cards makes it more complicated to figure out the best way to tackle the debt. There are online calculators available for this as well. CNN provides an excellent tool that provides a planner to help get rid of credit card debt in a reasonable time frame. Whatever extra money is available to pay towards credit card debt is input and the planner will return a table with the amounts to pay to each card and the time-frame it will take to eliminate the debts by applying higher payments to the highest interest debts first.
It can be very frustrating to payoff high interest credit cards. There are ways to tackle this problem. First, contact the credit card issuer to find out if they are willing to reduce the rate to help reduce the balance faster. Depending on the company and their policies, they may or may not be helpful in reducing card rates. If that does not work, try to transfer the balance to a lower rate card either using an existing card or open an account for a new card with a promotional offer.
Sites like Bankrate and many other sites provide lists of offers available for balance transfers and other credit card related services. Applying for a new credit card will have an affect on credit scores so consider this option very carefully. If neither of these options will work, more drastic steps may be necessary.
Severe Problems Call for Drastic Actions
Credit counseling services can negotiate with card issuers to lower rates and manage a repayment plan if the debt problem is severe or unmanagable. Information on credit counseling services can be found on the National Foundation for Credit Counseling website. They will request a lot of information about monthly expenses and income in addition to the debt that needs to be paid off. Typically, if they can help they will require a small fee for their services, but they may waive the fee depending on the circumstances. Enrolling in debt management plan with a debt counseling service will not negatively affect your credit, but they typically require that no additional debt be accumulated while using their services. This is a much better option of managing credit card debt as long as the payments are affordable then resorting to a home equity loan or bankruptcy.
Making the commitment to get out of credit card debt is one of the smartest moves to improve financial health for the long term, and it can be a very rewarding process once that debt is gone for good.
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