How to Get Out of Credit Card Debt
Credit cards are so much a part of everyday living that it is hard to imagine what life would be like without them. But if you find yourself sinking deeper and deeper into debt and are looking for a way to escape, you need to make a plan that over a period of time will bring your finances back on to a sound footing. While the banks do all they can to encourage you to increase your borrowing by setting low minimum monthly payments and sending you countless pre-approved offers for new cards, your plan must counter their efforts and start to reduce your debt burden.
The first step in reducing your credit card debt is to stop it increasing. Stop using your cards, if necessary by cutting them up. If you need to keep one card for emergencies, keep it somewhere that requires effort to retrieve it. You could lock it in a safe or freeze it in a glass of water. At the same time you want to remove the temptation of pre-approved cards coming through the post. Contact Equifax or one of the other credit bureaus to stop these mailshots.
Use cash for your regular spending. Half the trouble with credit cards is that when you spend plastic, it does not seem like real money. Handing over dollar bills will tend to concentrate the mind. For those expenses where it is impractical to pay with cash, use a debit card.
Avoid the minimum monthly payment trap. Because it is the minimum, you know that you have to pay this amount, and so you tend to do so out of habit, which is just what the banks want you to do. Depending on the interest rate the balance on your card will increase even if you do not make any new purchases. At best it will take you several years to clear the debt.
Reduce your credit card balances with a planned strategy. There are various names for this approach, Cascade, Credit Crunch and Snowball are three, but they all amount to the same thing. Take all your credit cards and check the interest rate charged on each. Make a list with the highest rate card at the top. Then pay as much as you can manage each month on the top card while paying the minimum monthly payment on the rest. Once the top card has been paid in full, repeat the procedure with the next card on your list. This is recognized as the quickest way to clear your debts.
If you have any savings, consider using some of these to reduce your card debts. Your savings may be earning you 5% or 6% but your credit cards will be charging you 18-20% so it is easy to see which is better value. For the same reason it makes no sense to try and save while you are paying off your credit cards.
Look out for ways to reduce the interest you are paying. It may be possible to transfer the balance from a high rate card to one that charges a lower interest rate. If you tell the card company that you are thinking of a balance transfer, they may agree to reduce the rate so that they can keep you as a customer.
Getting out of credit card debt is not easy but if you make a plan and stick to it, you will see results. Your progress will be slow at first, but when you see your first card repaid, you will realize that the strategy is working and that with perseverance you will succeed.
Hugh Harris-Evans writes on financial matters and is the webmaster of Credit Card Cleanup.com where you will find further articles on credit repair and tips on how to make the most of your credit cards. To receive an intensive 5-day e-mail course on Restoring Your Credit, Click Here: Credit Repair Strategies.