Posts tagged as:

high interest rates

Credit Card Debts Dragging You Down?

August 23, 2009

in Personal Finance

According to the American Banker’s Association, the average American family carries $8,000 in credit card debt. While a lot of companies claim they can magically make this debt disappear, there’s no substitute for formulating a realistic plan to get it paid off. High interest rates and late fees can complicate matters, so it’s important to make a plan and commit to it. There is no quick fix ? paying down any debt takes time ? but there are several viable options and techniques that can help.

* Prioritize

Make the payment of your credit card debt a priority. Without this basic first step, you will likely find it only too easy to keep running from the situation or accumulate more debt. Unless you address your debt head-on, it will continue to eat away at your family’s budget and even your relationships ? according to PRLog, excessive credit card debt may be a leading cause of divorce.

* Create a family budget

This is not as daunting as it may seem. First, gather the family’s financial records: bank statements, utility bills, etc. Then, list your family’s total monthly income followed by its total monthly expenditures, such as a car payment and mortgage. This way, you will have concrete numbers to work with in regard to your credit card debt.

* Pay the debt with the highest interest rate first

Lay out all your credit card statements in order of highest to lowest interest rate, and focus on paying off the highest interest rate card first. On the highest rate card, pay as much over the minimum payment as you can each month. When that one is paid off, move to the next highest interest rate card.

* Work with the credit card company

Because they are unsecured creditors, credit card companies tend to be willing to negotiate the interest rate or other aspects of your credit agreement. When you explain that your intent is to get your debt paid, most creditors are willing to listen and work with you. When you call, have your household budget and latest credit card statement from that company handy.

* Think outside the box ? do you really need to spend money on that?

What if you can’t find that extra $20 or $100 every month to dedicate to your debt payment? It never hurts to get creative. Go back to your budget and detail all expenditures – even those for which you don’t have a paper trail, such as a daily cup of coffee on your way to work or eating lunch out. Make your coffee at home and bring it to work in a travel mug, and save up to $3 a day ? that’s $60 a month you could put toward paying off a credit card. And that’s just coffee.

Brown bag it for one week a month and save the $10 a day you were spending on lunch out. In one week, that’s another $50 saved. And that waiter or waitress who brings you your lunch might be working to pay off his or her credit card debt ? waiting tables is a viable option for bringing in some extra cash with flexible hours.

Often, we just don’t realize where our money is going. Taking the time to sit down and evaluate just how much we have and where it’s being spent is not magical, but with commitment it can bring relief and eventual freedom from debt.

Related Blogs

Click to share this post with friends.

For more great content, remember to subscribe to my RSS feed. Subscribe

Ten Tips on How to Pay off a Balance

July 2, 2009

in Personal Finance

Credit can be a wonderful thing. But when it gets out of hand, it can wreak havoc on our finances. This is especially true when it comes to credit cards. Charging up a large balance is bad enough, and by the time you add in fees and high interest rates, the debt can be overwhelming.

In a perfect world, everyone would use credit wisely and pay off balances within a month or two. But in reality, cardholders often build up a mountain of debt and fail to realize it until it’s unmanageable. That’s when it’s time to put the plastic away and work on paying off the balance. Here are some tips to help you do that.

1. Rework your budget, eliminating unnecessary items. Even little things like that cup of coffee you buy on the way to work every morning can add up. Once you’ve decided what you can do without, add up how much you’ll save and add it to your monthly payment.

2. Volunteer for overtime, or get a second job. Put all the extra money you make toward your balance.

3. Reduce your overall interest rate. If you have a low interest card that allows balance transfers, transfer the balance of a higher interest card to it. Even if you can only transfer part of the balance, you will save some money and be able to pay everything off more quickly.

4. Put lump sums of money that you receive toward your credit cards. These may include tax refunds, bonuses or settlement proceeds. This can save you a lot of money in interest.

5. Put your raises toward paying down your debt. A raise is money that you were living without before, so you should be able to continue to live without it until you’ve paid off your credit cards.

6. Sell stuff. Get rid of that extra vehicle, or have a garage sale. We all have things sitting around that we could do without, and those things can make us money. Use the extra cash to help pay off your credit card debt.

7. Snowball your debt. This simply means paying the minimum payment on all but one card, and paying as much as possible toward that one until it’s paid off. Then you move on to another card, paying the minimum payment plus what you were paying toward the previous one. Repeat until all balances are paid in full.

8. Get help from friends and family. A loan from someone who is close to you can help you get out of debt, and repayment terms are usually much more favorable. But it’s still important to have a repayment agreement and follow it carefully.

9. Negotiate with your creditors. If you’re having a hard time paying off your balance, they might be willing to lower your interest rate. You may be required to stop using your card while the lower rate is in effect, but a moratorium on charging until your finances are in better shape is a good idea anyway.

10. Talk to a credit counselor. If you are several thousand dollars in debt and can’t afford your payments, credit counseling could save you from bankruptcy. A credit counselor will negotiate with creditors on your behalf, and can usually get you lower interest rates and reduced payments. Once it’s all set up, you make one monthly payment to the credit counseling agency, and they forward the appropriate amount to each creditor.

Related Blogs

Click to share this post with friends.

For more great content, remember to subscribe to my RSS feed. Subscribe

Would Debt Consolidation Work For You?

April 13, 2009

in Personal Finance

If you have a multitude of credit card bills, one option you can utilize to pay off most of them is through debt consolidation.

For example, let’s assume you have several credit cards with high interest rates. The monthly payments are becoming more difficult to pay, and you feel as if the hole you are in is getting deeper and deeper. There are several options available to you.

First, you can consolidate the debt by taking out a home equity loan. If you have a good credit rating, meaning the FICO score is 700 or more, your chances of obtaining a loan are very good.

Second, you can obtain a loan from your bank. Again, depending upon your credit history, the amount and interest rate will be determined accordingly.

Third, you can call each credit card company and renegotiate the interest rates.

Finally (and this is the last resort), if you have a credit card that is offering a very low interest rate, and if the interest rate will be set for more than a year, then you can use that card to pay off the high interest rate credit cards and just have one credit card bill to contend with.

If none of these options are applicable, the best advice most experts offer is to seek credit counseling with a certified organization. This can help you reduce the interest rates, and perhaps work out a repayment plan with these companies to give you some breathing room.

However, the key to debt consolidation is that once you have paid off the majority of credit cards, it is incumbent upon you to cut up those cards (except one that should be kept for emergencies) and vow never to apply for new credit cards or begin using the ones you have paid.

If your credit is not considered the best, you can also ask a family member to co-sign a loan or, as mentioned earlier, take out a home equity loan. However, with the value of homes in decline, it may serve you well to apply for a loan from your bank instead.

Debt consolidation can work. Consider that if you apply for a loan, the monthly payments will always be the same. The interest rate given at the outset will largely depend on your credit standing. But the clear advantage is that there is only one bill to pay each month over a period of time.

Related Blogs

Click to share this post with friends.

For more great content, remember to subscribe to my RSS feed. Subscribe

{ 1 comment }