9/6/2011 11:43 AM ET|
6 steps to wipe out credit card debt
Getting yourself out of the hole when you owe a great deal on your cards is never easy. But certain strategies can make the process more manageable.
One of the worst aspects of unmanageable credit card debt is the feeling of helplessness. It can seem as if there's no hope of ever getting on top of things, and that can lead to people ducking reality so hard that they end up with their heads in the sand. However, for most, things don't have to be like that, and just facing up to what's happening can improve the mood, and build motivation.
There is a group of people for whom there's little choice but to continue to live with rising debt. They're the ones who -- often through no fault of their own -- find themselves with so little income that they have no choice but to continue to run up credit card balances to feed their families, maintain a roof over their heads and keep the lights on.
Unfortunately, the following six steps won't be of much use to them just yet. However, once their lives are back on track, the steps may be helpful.
1. Face reality
You know it's going to be painful, but you just have to grit your teeth and get on with it. Facing up to your position is an essential first step. It involves:
- Adding up the balances on your credit cards and other loans so you know how much you owe. Note the rate you're paying on each card while you're at it.
- Listing all your essential monthly spending: rent/mortgage; heat and power; loan payments (including minimum payments on credit cards); commuting costs; home, car, health and other insurance; property taxes; Internet fees; food purchases -- everything that you can't live without.
- Calculating the difference between your total income and your total essential outgo. That's your discretionary spending. If your discretionary spending is zero or a minus figure, you should find a qualified and reputable credit counselor.
- Getting a handle on how you're currently getting through your cash. It may sound incredibly boring, but try writing down, at least for a month or two, every cent you spend. You might be surprised by how life's little luxuries (eating out, your daily newspaper, those regular trips to the coffee shop and so on) add up.
2. Minimize your spending on luxuries
Resolve not to fritter away the discretionary spending you have on those luxuries, but instead to devote it to paying down debt. Use a credit card calculator to explore how long it will take you to pay down each card, and set optimistic but achievable goals (but first see step 5).
3. Contact your credit card companies
If things have gotten so bad that you can't keep up with minimum monthly payments, you have little choice but to call one or more of your credit card companies. Don't launch into a long sob story, but tell them calmly and clearly that you're temporarily struggling and need them to cut you some slack. Don't expect it to be an easy conversation, but keep your cool and try to convey the fact that you're a responsible person who is determined to pay back what you owe. There's a good chance you can get your minimum payments reduced.
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Follow Dave Ramsey's advice. Rank them by balances from smallest to largest, and pay off the lowest balances first. It gives you some early success, and it really does begin to snowball.
Yes, logic tells us to go with the highest rate first, but if we had used logic we wouldn't be reading this article in the first place. It worked for me. Paid off about 18,000 in about 14 months.
Send this article to everyone in Congress. They need to get their own house in order!
Why? Simple, the habits that got many people into trouble persist and VERY often they find themselves with old debt (transferred) and then new debt run up on the old card. Why do credit card companies allow low rate balance transfers - simple, they know their metrics. They can count on the bad habits of others making them big bucks. Don't do it - bare down and pay it off.
One last thing. Most bad debt settlement companies are long gone since the FTC changed the rules on Oct. 27, 2010. They no longer allow an upfront fee for non attorneys, or those that are not local (per the TSR rules).
Real story. Discover Card is the absolute worst. I needed help. Wife was laid off, I'm in sales and business is slow in construction. Called and asked for help. Didn't get much, but it was some help. Here's where Discover got me. When I negotiated the automatic withdrawal I was given the date of the month that I requested. What the customer service rep did not tell me was that the date I picked was actually going to be a late pay date each month. I found this out when I noticed that my interest jumped to 29%. Almost half of my payment is going to interest.
So I called and that's when I was told I was paying late each month. My response was why didn't you tell me and I would change the date. I even gave them the name of the customer service rep that had set it up. I asked to speak to a supervisor and was told, no, it won't do any good, you have not met the terms of the agreement. Now I am going to find a way to pay Discover off. Then I am going to let them know just what kind of a POS they are. I owe the money and I will pay. But I don't owe 29% interest. Discover Card is just like the commercials they have on TV, you can't get to talk with anyone. Just shifted from one automated response to another. They are without a doubt the biggest crooks in the credit card industry. They can kiss my ***.
I've paid off credit cards when I was young, $15,000. The key to doing it was to take every spare dollar, live very spartanly, attack them one by one and keep using the same amount of money to pay them down.
Now I've made the same mistake over time using credit cards for various vacations or large purchases when I didn't want to use cash. I've paid down $40,000 in 2 years but am also unemployed. When you're unemployed, it's difficult. You can't apply for balance transfers because you'd have to lie on the application and say you're employed. So the banks can stick it to you with high interest rates. Citibank is definitely the worst!! They charge me 25% approximately 200 dollars in interest a month. I have tried to negotiate with them twice and they've said they couldn't help me. They can rot in hell. When I get a job , I will transfer their balance immediately to another card but won't cut it up. I just won't use it ever again but keep it so my credit score remains high. In my opinion, although it's painful....I suggest trying to pay them off without filing bankruptcy. Also although the banks are greedy and evil, they did make me a loan and didn't twist my arm to use and take their money. But if you're starving..pay your bills and mortgage first and screw the credit card companies!! They will always be around to take your money in the future. I'm also locking my cards away forever when I've paid them off and only using cash. I should have learned the first time around.
The person who wrote this article lives in a fantasy world. Contact your credit card companies? Completely laughable.
It's amazing to see so many people who experienced the same thing I did when I called credit card companies. And I was PAYING ON TIME... EVERY time. I had always, and foolishly thought: If you play BY THE RULES there's no problem. WRONG. I played by the rules and my credit score went Down by 70 points in one year.
It turns out that creditors who were in trouble (not me) had just decided to lower my limits without letting me know. But how could this be?? I was paying on time, every time. They don't care. So when I told them I'm going to start paying back on my Own terms instead from now on, the idiots on the other end of the phone actually said: "Well that will only hurt your credit."
I'm sorry... WHAT? How could I make them understand that my credit was already toast.. because of Them.. not me... And what would be the incentive to do Anything if I was already being screwed... by Playing By the Rules? Well, I could not make them understand... So I contacted a bankruptcy lawyer and that was that.
You Can't play fair, or do the right thing, because they absolutely will not let you - I Tried.
Idiots - right along with the people who published this article.
I learned a couple of things while paying off my credit cards and other debt,
Dont surround yourself with people who have poor money management skills. You can usually tell if they spend lavishly but still live poorly. You dont want any of that rubbing off on you.
Dont surround yourself with people who care about material things and make bad decisions in general wether in finances or life. I had a friend who only cared if something was fendi/gucci etc...but needed money to borrow during the week for lunch. Needless to say I distanced myself from her. They will eventually be a drain on you and your pockets.
Dont discuss finances with people who are not qualified to help you or guide you. This means your peers (unless they are doing much better than you and can/willing to give you sound advice).
Occupy yourself with things that make you feel good that are free like bike riding or other exercises. If you feel good you dont need to spend on needless material things to make you feel good in order to fill a void. I swear this works. I became so busy with dancing I had no time to spend on stupid things. I was too tired yet I felt and looked awesome and didnt care.
Last but not least. Do not compare yourself to anyone else. I have a feeling this goes on a lot. "Joe makes the same amount of money at my job and he has a brand new lexus so why cant I"....Just because you make the same doesnt mean you can/should spend the same.
Keep ONE credit card with a limit no more than 3K for an emergency. If you need more than one card, you are living well above your means.
Banks and credit card companies do NOT want to help their customers over temporary hardships. They have the rudest telephone people as "collectors", who belittle and reduce their customers to tears. The only reasonable solution, if you've lost your job and other income and have overwhelming medical and credit card bills, is to seek Bankruptcy PROTECTION. There is a reason it is called protection, and it is a Right written into law. Big business does not hesitate to seek protection under the law from their creditors when it is in their best interest, so why is there such a stigma when it comes to an individual in desperate circumstances, from seeking relief from debt? The fall out from the rampant abuses on Wall Street and a runaway government (under both parties and previous administrations) that led to the Great Recession has caused millions of hard-working, God-fearing Americans to lose everything. They should at least get some relief from the crushing load of debt.
I am stuck with 62K in credit card debt and no more money to pay them back. I contacted them regarding debt reduction or a payback plan with a lower interest rates, they did was lower my credit limit instead causing my credit score to plummet.
Screw them all. I had a 780 credit rating and with their actions it helped me to go down to the low 600's.
Here is how I am going to reduce my debt to zero and all it cost me was about $2,000...Chapter 7 bankruptcy. They get nothing and I dont have the burden for the next 10-15 years of them!
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