Eliminate Credit Card Debt

There are basic steps to anyone wishing to eliminate credit card debt. The first step is a reality check. This consists of finding out exactly what you owe and to whom. Yes, you may have an idea that you have lots of debt, but you need to keep a list of who your creditors are, what is owed to them, and what interest rates they are charging you. This will be your guide to efficiently getting rid of that debt. So…get a pad and pencil and start listing each of your creditors. A creditor, by the way, is anyone to whom money is due. For purposes of debt reduction, a creditor is a business to whom you owe unsecured debt. Unsecured debt is debt such as on your credit cards. Credit card companies in the past looked at your credit history and deemed you capable of repaying debt to a certain limit. On that basis, they extended credit to you with no collateral.

Secured debt is different from credit card debt. With secured debt, you put up something of value in exchange for the money being loaned to you. Why bring this up? Because you need to be aware that if you default on a secured loan (i.e., cannot pay it back) you stand the risk of the creditor taking possession of the item you put up for the loan. This could be your car, some other property, or even your house. For this reason, it is extremely dangerous to take a loan associated with your home and use that loan to pay down credit card debt.

If for whatever reason you are not able to pay back the secured loan, you could loose your house. The better way to eliminate that credit card debt is to dig you heels in, cut expenses, and start the process of paying down that debt. So, back to the list of creditors. Make a list of creditors and for each one, list the amount owed and the interest rate they are charging you. In the case of credit cards, also list the amount of credit they have extended and how much room remains on each credit card.

With you list in hand, you can start the process of reducing debt the easy way - by looking for cards that have both a lower interest rate plus some room for additional charges. If you have any such cards, you can call those credit card companies and ask to transfer some debt from your higher interest rate cards to the lower interest rate cards. If you are able to do this, it will give you an immediate saving.

What to do with this saving? Next month, add the amount to your overall credit payments. Note how paying down credit card debt accelerates. Take the example of $1000 owed to a credit card company at an interest rate of 20%. That means that you will be paying about $200 per year just on interest and you will still owe the credit card company $1000. (The actual amount is a bit worse than this because of how the interest payments are calculated, but assume $200 per year just for discussion.) Now lets look at what happens when you pay down that $1000 debt. You are now saving $200/12 = $16.67 per month. Each $1000 paid off results in an additional $16.67 in you pocket each month. Now imagine if the amount is $10,000. Now you are starting to see significant money. At $10,000 paid off you have $166.67 per month extra (hopefully that you will use to increase you next payment).

Using this example, it is easy to see how the process of elimination of credit card debt accelerates over time. The more you pay down, the faster the debt disappears. The only requirement is for you to stay disciplined and committed to the process.

Eliminating credit card debt is probably the single best “investment” the average person will ever make. What makes this such a great investment? The fact that you get an immediate, constant return on your investment. Let’s say you have a credit card with a balance of $10,000 and an interest rate of 15%. Making higher payments until you eliminate that credit card debt is the equivalent of putting around $125 per month in your pocket. This is money that would otherwise go to the greedy banker. Ask any seasoned investor, “How many investments they have made with a consistent 15% return year after year?” If they are honest, they will say, “None.”

To eliminate credit card debt, your first step is to find some extra cash to pay down more than the minimum due each month. If you only pay down the minimum required by your credit card issuer, it will take years - maybe decades - to pay those cards down. And, that assumes you don’t add more debt on that card that will cost you even more in interest. Taking this long to pay down the debt means paying an obscene amount of your hard earned cash as interest payments.

On the other hand, if you stop adding to the amount you owe on your credit cards, and pay down a little each month, your balance will, of course, gradually get smaller. That means that each month you pay a little less in interest. The money saved can then be added to your next month’s payment. By staying consistent with this strategy, you will see that the debt is eliminated at an increasing rate. It accelerates a little more each month.

Don’t think you can’t find many ways to come up with that cash. Some are easy; some are not. It depends on your situation and how serious you are about no longer being a slave to the banks. You can think of plenty of ways to reduce your monthly budget. You can also find money saving tips on this website and elsewhere.

Operate On Cash

Here’s a really simple tip to get started with eliminating credit card debt. To start down the road to eliminating credit card debt start - immediately - switch to a cash-only budget. For one thing, it is quite an eye opener to look at all of the $20, $50, even $100 bills that go flying out of your purse or wallet each week just to put food on the table and purchase other incidentals. It is one thing to just swipe a credit card – it tends to make your purchase “just” a number. It is quite another to start out on Monday with a healthy stack of greenbacks, and be sweating it out by the end of the week wondering if you will have enough cash even for a gallon of milk or to put gas in the car.

Even better is the effect on a family. Just keep showing the spouse and kids how much is left each day. They will appreciate the amount of money required to run a household. As a result, they will usually be much more open to helping trim down the budget.

Raise Some Cash to Get Started Today

There are so many ways to reduce your budget. The top marketers of every corporation work overtime to find ways to extract more money from you. However, after you work through your monthly budget and reduce those expenses, it is time to raise a little cash around the house.

Go through the attic and garage. These days, there is really no reason to have a cluttered garage. Sell things on e-bay. If you really don’t want to take the time for that, there are now businesses that will take quality stuff and sell if for you for a commission.

Take the money you accumulate with your garage-clearing to get you off to the best possible start on eliminating your credit card debt.

Credit card debt can be eliminated for all but the most dire situations. I can make this claim based on the knowledge that credit card companies will simply stop issuing credit to those whose finances are beginning to spin out of control. They will discover this by observing the creditor’s falling credit rating. Of course, high debt coupled with job loss or unexpectedly large medical expenses can change a manageable situation to one that is out of control. Then, bankruptcy may be the only way out. But for the vast majority of creditors, this is not the case.

For most cases, the best method for eliminating credit card debt is the old fashion way - roll up your sleeves, trim your expenses, and get started paying down those credit card debts. Then, dig in you heels when the temptation to go over your budget comes up (which will happen something like 27 times a week!). But, by relentlessly making this commitment, the amount you can pay down your debt each month will grow ever larger. Your payments get larger since your balance is gradually reduced which results in lower interest charges each month. This means that what would have gone to the greedy banks can now be applied to pay down your debt.

One way to put yourself in further financial danger, however, is to put up your home or other essential property as collateral for a secured loan. Once you take out a home equity loan, you may get a more favorable interest rate – nothing wrong with that. But, it also puts your house at risk. Meaning…if you were to suddenly loose your job and cannot make those mortgage payments for an extended period, it is the financial institution’s right to seize the collateral on that loan. In this case the collateral is your home.

Unsecured as well as secured debt consolidation loans are generally available from lending institutions. These are intended to help you manage your credit card payments by combining all credit card debt into a single payment. Unsecured consolidation loans are generally available for those that are not too far in debt. To qualify for the unsecured loan, the borrower’s financial situation would have to suggest that the lender is not at high risk. So, if you are carrying a particularly high level of debt relative to your income, you will probably not qualify. In this case, you would have to look at a secured debt consolidation loan. In this case, you will put up something – such as your home – as collateral for the loan. Unfortunately, similar to the home equity loan, your will risk loosing your home if you cannot continue to make the loan payments.

Although the unsecured consolidation loan seems to be the way to go, if you have a very negative credit standing, your chances at obtaining such as loan are practically non-existent. Also, given the financial situation that is global in nature, do not expect any reputable lender to make such a loan.

One other situation to avoid…the “payday” loan. These are loans that allow you to access cash by putting up you next paycheck. Chances are you will not be able to pay back this loan on time. That’s when the added paid starts. These loans come with all sorts of interest rate clauses. Before you know it, you are paying back unbelievable amounts in interest. These make the greedy bank’s 29% credit card interest rates look attractive. Don’t use payday loans. Ever.

Hopefully, this has opened your eyes to a few pitfalls to avoid when getting your credit card debt under control. There is no magic. But if you are committed and diligent, you can eliminate that debt. See our other articles on this website to get ideas on how to eliminate credit card debt the right way.

How much do you know about the amount of credit card debt you have? In order to have an effective plan to eliminate credit card debt, you will need to stay on top of exactly how much and to whom you owe money.

For some, just listing all of our creditors is a scary thought, much less paying them all back. Getting this list on a page or (even better) into a spreadsheet is intimidating because all too often the amount is more than you want to think it is. However, you should start your debt reduction strategy with a good dose of reality – no matter how painful.

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There is a barrier to break through here. It consists of making a transition out of the mindset that you have a manageable amount of debt that you will pay down “some day.” You need to instead substitute a disciplined knowledge of what your debt burden is and start the unavoidable task of paying it down. It is not likely that you will receive a huge inheritance, get lucking with an investment, or win the lottery. So, the healthiest strategy is to get started today with you list of debts and finding a little extra money each month to start the process. If you win the lottery, all the better.

Take this step today! Pay more on your credit cards than you charge for the next month. Then, next month you will clear this hardest of hurdles of getting started eliminating your credit card debt. The feeling you will get from actually reducing your debt over the next month will surprise you and give you some much needed momentum.

Your fundamental strategy to eliminate credit card debt is to somehow, somewhere come up with a bit more money than the minimum payment due each month on your cards. If you don’t, you will likely never get those cards paid down. Making minimum payments, what little is paid down after the interest charges most likely will eventually disappear due to some unexpected expense.

The most common alternative to getting rid of that credit card debt is to save more by reducing your household budget. You should definitely pick out a few of the many tips and strategies for doing this and get started right away.

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Once you have implemented a budgeting strategy to get started, the next thing to consider is extra income. Sure, you will have to give up some personal time, but the effect of bringing in even a little extra income and using it to pay down debt will surprise you. That extra income is not only going to reduce you debt load on next month’s bills, it will save multiples in interest charges over the time you spend eliminating debt.

You can do this several ways, but the simplest is to start a simple side business. You can pick up books in any used bookstore full of low-risk businesses to start. These should be ones that take little or no capital to start. They can be as simple as house cleaning, doing household repairs, pet watching…you name it. Don’t go after some business that requires employees and lots of start-up expenses. Keep it simple, get more cash, and use that cash to reduce you debt. Then, take a little of the extra cash you are earning to treat yourself. You will deserve it!

If you want to be effective in eliminating credit card debt, it helps to become familiar with some standard terminology. Let’s start with the term: accrued interest.

If you loan money to someone else, interest is your friend. Your money is working for you because the debtor is paying you interest. When you owe money – as is the case with credit card debt – interest is your enemy. Of course, there are circumstances when interest is necessary and good. But, that is generally related to business loans that allow the business to grow. The growth of the business through debt financing more than compensates for the interest paid on the loan.

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A consumer loan in the form of credit card debt is hard to justify because the interest you are charged each month is eating away at your money. This is money that you would otherwise have to make investments or, even if you didn’t save a dime, it is money could be spent to increase your standard of living.

Now…let’s say you get behind on your credit card payments. Unfortunately, the interest “meter” continues to run at all times. Not only does the balance of the debt not go down because of the missed payment, the balance actually increases. This is because interest continues to accumulate (is accrued) and is added to the amount of debt you owe. This new, higher amount will show up on your next statement.

No question, it is painful to reduce your expenses in order to pay down debt. But it is twice as painful to miss a payment because of the concept of accrued interest.

If you have some credit card debt that is in collection, you need to be aware of a couple of options that will help with your debt elimination strategy.  Let’s say that you have the means to pay off this particular debt.  The fact that it is in collection means that it is already damaging to your credit rating.

If you pay off the debt, then the collection agency will normally issue a letter of payment showing that you have paid off the debt.  This is ok, but you want to do much better if you possibly can.

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Use the fact that you are paying off the debt as leverage to negotiate for a letter of deletion.  This is much more powerful.  A letter of deletion is a document that is sent from the collection agency or creditor.  It goes to the credit bureaus and requests to them to remove the negative item (that is, the debt you are paying off) from your credit report.

What is the difference?  The letter of deletion will allow your credit score to start improving immediately.  Whereas, the letter of payment does not.  By holding back that final payment to get the collection agency to issue the letter of deletion, you are getting much more for making good on that particular debt.

The collection agency or creditor is getting their money.  So, they should be willing to work with you in a way the best benefits you.

Whenever your credit report is examined, the fact that an inquiry was made is recorded.  This happens, for example, when you apply for a new source of credit such as for an unsecured credit card.  This is something you should always keep in mind as a part of your debt elimination strategy.

The thing you least want to happen is to give the appearance that you are trying to grab lots of loans or credit at once.  Creditors may suspect that you have been rejected by lenders and are applying for several loans in the hopes of finding one that will extend credit to you.  Obviously, this would make you a poor credit risk in the eyes of creditors and it could also impact negatively on your credit score.

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Even so, shopping for new credit – once you have a debt elimination plan in progress – can be a wise thing to do.  After all, if you can get a new credit card with a small – perhaps even 0% - interest rate for an introductory period, this will save you money that can be applied to paying down your remaining credit card debt.  The point is to do this sparingly and strategically so as not to impact your credit rating.

By strategically, we mean that you should make your credit card applications during a short period of time.  This way, inquiries made within a few days window will likely be lumped into one inquiry.  Then, once you have acquired the new card, wait for a few months before applying for any new credit.

When you are serious about credit card debt elimination, you will want to take advantage of shopping for low interest rate cards.  Use them to move debt from higher interest rate cards – and don’t use the high interest rate cards ever again!

It is convenient to compare credit card interest rates online.  Usually, you enter some personal information and you can get a quote in moments.  However, be careful not to get carried away.  Comparing rates online is relatively new, so credit bureaus may still count quote estimates as inquiries.  Inquiries are recorded and too many of them will impact your negatively on your credit history.

Again, shopping for the lowest rates is a good strategy.  So, you just need to be clever with how you go about getting quotes.  For example, you should be able to do so research on a lender to find out what type of rates you can expect for them.  If they have a reputation for not being very competitive, then pass them by in favor of another lender.  This will keep the number of inquiries at a minimum, while allowing you to shop for the best possible rates.

Many have the wrong impression that as they reduce their credit card debt, they should always close the credit card account after paying off the balance owed. This is not necessarily the way to go about eliminating debt since you should also have a secondary objective of increasing your credit score.

The reason is this…credit bureaus give high favorable marks to those that have good long-term credit history. So, if you close an account that you have had for a very long time once you pay off the balance, you also loose that credit history which could be working in your favor.

It could be, of course, that you really do have too many accounts and that some of them should be closed. If so, by all means close some of these accounts. But for the sake of optimizing your credit score, be sure to eliminate the credit cards that are more recent first.

Also, close that account only if you are sure you will not need the line of credit any time soon. If, after a few months, you discover that you need that credit for an unexpected event, applying for a new card could drop your credit score. Best to hang on to one or more cards – preferably with no balance – as a financial backup. Just be sure to keep up the good discipline of reducing your overall debt level by leaving those cards unused.

Check out some other tips to avoid when eliminating credit card debt.