Credit card debt elimination programs – Do you need one?

There are several popular credit card debt elimination programs available for consumers. However, most of these programs will require you to pay a hefty fee. If you really need a group of professionals to manage your debt, sure go ahead and look them up. But if you’re willing to put some time and effort, you may be able to eliminate your debt yourself. Whether you opt for a professional debt elimination program or do it yourself, what’s guaranteed is that it won’t happen overnight. If you want to eliminate your credit card debt, there are basically three options, namely, debt reduction, debt settlement, and credit card consolidation.

Debt reduction, as the term implies, is simply reducing or trimming down your debt. For example, if you owe $20,000, you negotiate with your creditors (possibly through a debt settlement company) to bring down that to $12,000 for example. Yes, this can happen, they will wipe out a portion of your debt to help you pay the balance. It’s not as easy as I made it sound, but it certainly isn’t impossible. Sounds encouraging ha? Indeed, do not give up; you can get rid of your credit card debt. Basically there are two ways how debt reduction works. The first is known as debt avalanche. Say you have credit with 4 credit card companies and their interest rates are 22%, 18%, 11%, and 8.5%. What do you think makes sense to pay off first? The one that charges the highest interest, that is the one with 22%, of course. Because that is the credit card that charges the highest interest on your debt and therefore increases at the highest speed.

Try to pay the minimum payment plus extra payments on the higher ones and just pay the monthly minimum payment on the ones with the lowest interest. This way, the cumulative interest that accrues every month would be minimal. Once the debt with the highest interest is paid off, start paying extra towards the account with the second highest interest rate and so on. A simple thing to do, but not everybody thinks about it.

The other method of ‘debt reduction’ is commonly referred to as the snowball method. This is where you pay off the smaller debts first and focus on the higher debts later. If the smallest debt also happened to be the one with the highest interest rate, that’s great. Then the snowball method and debt avalanche method will overlap with each other perfectly. If the smallest debt is not the one with the highest interest, you may want to think about balance transfer. If possible, transfer the debts with higher interests in to accounts with the lower interests. That way, you’re kind of paying off your ‘higher interest debt’.

As mentioned earlier, you can get the advice of a professional debt elimination program/company or simply follow the simple steps outlined above and take credit card debt elimination to your hands. We will cover debt settlement and credit card debt consolidation on another post.

Credit card debt relief – two easily implementable tips

Earlier we discussed some basic tips on how to get rid of credit card debt. Here we discuss several more tips and tricks that you can use to reduce your credit card debt. Complete debt elimination is not something you can achieve overnight, but is certainly something you can achieve within several months to a couple of years depending on how much you owe to your credit card company and your monthly income.

1. Shut down your credit card accounts, especially the new ones. Obviously, the more credit card accounts you have, the higher the ‘opportunities’ for you to get into debt. That’s why it’s a great idea to close off some of those accounts. In my case, I have about 7 credit cards of which I only use two or three (yes I know, way too many visa and master cards. Average number of credit cards held by American credit card holders is 3.5, according to a survey and I have twice that number). So it actually won’t hurt me if I close off those 4 other credit cards. But then the question is, should I close off my older cards or newer cc accounts? Well, one of the components at least of the FICO score calculations is the length of credit history. The FICO score is negatively affected every time a new account is opened. Therefore, a great tip would be to close off those newer credit card accounts while hanging on to the older ones. This tactic effectively makes the average age of your credit history older.
2. Pay off smaller debts or larger debts? Most of us with credit card debt have debt with more than one company. The Average credit card debt per household with credit card debt is calculated to be approximately $16,000. This $16K may not necessarily be equally divided among the different credit cards. Let’s look at a highly theoretical example. Say my Chase Visa card has $7,500 of debt, my Bank of America master card has $5,000, my Citi card has $2,600 of debt and my Discovery card has $375 of debt. That’s approximately $16,000 of credit card debt from four of my credit cards. If I start off by paying the $7,500 on my Chase card, I probably won’t be able to finish paying it for a while. Why not start with the $375 on the Discovery card? I will probably be able to pay it off in one or two months and that way, one of the three debts I have will be completely paid off in no later than two months. Therefore, in most of our cases, it is probably advisable to continue paying the minimum payments on the larger debts while trying to pay off the smallest one first. Once you pay off that first cc debt, you will get a tremendous psychological boost and confidence in paying off the other bigger ones. Bringing the balance down to zero in at least one credit card is better than bringing down the balance of all three accounts bit by bit.
   

You will agree that there is nothing earth shattering about these two tips on credit card debt relief. But if you implement them, there is absolutely no doubt that you will be coming out of your debt sooner than later.

How to get rid of credit card debt fast and stay out of debt

So you want to stay out of credit card debt or you’re looking for relief from credit card debt. Want to eliminate debt? Consider the following tips and tricks for getting out of debt, and staying out.

Stop charging your credit cards. As someone wise said “The first step out of any hole is to stop digging”, and getting out of credit card debt is no exception. One of my very good friends got in to so much credit card debt, she had a discussion with her parents and husband and decided to get rid of all her credit cards. I’m not asking you to take such extreme measures, but ‘restrain’ is important whether you want to eliminate your financial debt or save money for your family’s future. May be you can keep one or two credit cards for a rainy day, and close all the other credit cards after consulting with your credit card company (or bank).

Keep credit card spending under control. If you don’t want to (or you can’t afford to) stop charging your credit card/s completely, you should try to limit your monthly spending to what you can afford to pay. Make a point to set aside a fixed amount of $ on your pay day for paying your credit card bill and make sure you don’t exceed that amount in your credit card spending. I know, it’s easy to say, sorry… but you’re trying to get out of debt and this is the way to do it.

Transfer balances to a low interest credit card from a high interest credit card. In the USA, the typical interest rate for credit cards is between 7 and 36%. In some other countries (e.g. Brazil), interest rates on credit cards can be as high as 240%. Yes, that sucks big time; be thankful if you’re in the US . Simply put, for every US$ 1000 of credit, you will pay $70 if your interest rate is 7% or $360 if your interest rate is 36% every year respectively. Now that’s a big difference. So if you have two credit cards, one with an interest rate of 7% and another with an interest rate of 20%, transfer the balance from the latter to the former and every month you will save $100s depending on what your debt is.

Make micro payments (aka snowflakes) whenever you get some extra money. It may be tempting to use whatever extra cash you get on entertainment. But if you are struggling to eliminate debt, you may need to think twice and use that extra cash for paying up some of that debt. You will only need to do it until your credit card debt is wiped out. Once you’re debt free, you can use all those extra money for entertainment and future savings. So what are these extra cash sources? How about income from garage sales or overtime work? Depending on what you do, you may have other sources of extra income.