CREDIT CARD DEBTThe Basics Behind Credit Card DebtIt seems like every day we get new credit card offers in the mail, promising low interest rates, high spending limits, and tempting perks. In a credit-driven culture, it seems like everyone needs a credit card. Indeed, credit cards can be very useful: they give us an outlet in emergencies, they allow us to build credit history, and they can be used almost anywhere in the world. However, without discipline, credit card debt can quickly become a seemingly never-ending nightmare. If you find yourself trapped in credit card debt, don't worry: it is possible to break the cycle.
The simplest way to eliminate credit card debt is to pay them off one at a time, usually starting with the highest interest rate and working your way down. Pick one credit card balance as your target; while paying only the minimum amounts due on all other credit cards, apply whatever extra income you can to your target card, until you've whittled the balance down to 0. Then get rid of that card and move on to the next one, and so on. Some advisors suggest starting with the lowest balance rather than the highest interest rate, particularly if you have a lot of credit cards. Either way works, as long as you stick to the plan. Alternatively, you can allocate a certain monthly amount (above the minimum payment requirement) for each credit card and pay them off simultaneously. That works too. As long as your balance is decreasing, you're on your way to eliminating your credit card debt. If you have a hard time laying off the credit cards, cut them up! You're never going to get rid of your credit card debt if you keep using them.
However, what happens if you can't pay even your minimum balances each month, or you can pay the minimums, but you then have to use those same credit cards to get through the month? First of all, chances are you can change your spending habits in order to better live within your means. Make a budget and stick to it. Use the Internet to find tips for increasing your income and cutting costs. If you compare your income and expenses and find that you owe/spend more money than you make, then it's time to make some hard choices. If worse comes to worse, you may have to let some debts slide temporarily while you take care of others. However, because this will negatively impact your credit score for years to come, this should be a last resort. Odds are, by making a budget and being aware of your spending habits, you'll find ways to cut down on your monthly expenses. This will help you avoid new debt while eliminating old debt.
If you struggle to keep up with monthly payments, consider consolidating your credit card debt. This will allow you to make one monthly payment to cover multiple debts, and it usually results in a lower interest rate as well. You might also consider taking out a loan to pay off your credit cards, since a loan is a one-time sum, while credit card usage is too often continuous. The viability of this option really depends on your financial situation and the interest rate you qualify for; since you'll still be responsible for the loan once you've paid off your credit cards, you don't want to merely trade one debt for another.
Remember that credit card companies are often willing to work with you as well, particularly if you plan to pay down the credit card balance but not cancel the credit card entirely. Talk to your credit card company. They might be willing to temporarily extend your due date and lower your interest rate, in order to make your monthly payments more comfortable and allow you to pay down the debt. If things have really gotten out of hand, you might even be able to negotiate a settlement with the credit card company, so that you pay a percentage of what you owe and call it even. However, be aware that this would negatively impact your credit score for years to come; for this reason, it's an option best avoided unless absolutely necessary.
These are just a few ways to deal with the credit card debt monster. It is possible to reduce your dependence on credit cards and pay off that debt that's been following you around for years. With a little discipline and better awareness, you can go back to making credit card companies work for you, instead of the other way around. |
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