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.

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How Credit Scores Affect Mortgage Applications

With a good credit score an applicant will receive prompt response from many lenders, all of them offering low interest rates and low down payment options. The loan amount offered also may be high. On the contrary a low credit score would result in a lot of rejection from various mortgage financers. Because creditors wouldn’t come forward easily to give credit to individuals that have a history of difficulty in repaying existing loans. After all, creditors take risk when they finance mortgages against the credit history of a debtor. Naturally, they will wish to remain on the safe side and pick up less risky ones that have good credit histories. A good credit score means less chance of missing on payments and therefore less risky.

But there are some real risk takers that will come forward to finance mortgages for individuals with bad credit scores. They would charge high down payments and always high interest rates though. They may also fix additional charges for every little paper work and may charge high closing rates. The loan amount offered will also be considerably less. The individual with poor credit scores will not have much choice but to accept the terms and conditions as there are no other alternatives. This is a tight situation and to avoid this you must have a good credit score.

People with bad credit may fall in to the trap of ’secured loans’. Secured loans are the ones where the loan applicant offers an asset as collateral security. The lender becomes secure about the repayment of the loan and not the borrower. Securing a loan with bad credit score becomes easy only when the applicant is willing to offer some asset as collateral security. This again is a very dangerous situation where an individual runs the risk of losing his entire collateral asset in case of failing to pay the loan installments in time. An individual should always avoid such type of a loan.

Resort properties normally require large amounts of finance which a person with bad credit may find it difficult to obtain. So it is always advisable to keep your credit score high. Incase the credit score becomes low due to unavoidable financial reasons it can be improved upon. There is no need to lose hope simply because a person has a low credit score. If the property that he intends to buy has good equity he should go out and try to obtain finances for it. There are many sub prime lenders willing to offer their services.

For a review of your credit report as it relates to a mortgage loan and a consultation on the best loans available to you, give us a confidential, no obligation and no cost call.