It's time to get rid of that credit card debt once and forall. It won't be quick. It won't be easy. But it can be done.
Step one is assessing the damage.
List all creditors, noting balances, credit lines, interestrates and monthly payments.
Track expenses. How much money comes in and how much goes outeach month? Where's it going and why? Are there places you can scaleback spending and free up more money for paying down card debt?
Stop charging up those credit cards. Pay with cash or debitcards instead.
One way to help curb your credit card spending is to wait 24hours before making a credit card purchase. Think about your goal ofpaying down debt. Is this a vital purchase? How long will it take youto pay it off?
Lots of people end up overspending simply because they don'tpay close attention to their finances. Why not carry an index card inyour checkbook to help you keep on track? On the card, write how muchgoes to savings, how much for groceries, how much to debt and so on.
As for paying down the card balances you do have, zero in onone card at a time. Pay $25, $50, $100 or whatever you can spare on topof the minimum payment. Minimize interest costs by transferringbalances to the card with the lowest interest rate.
From a dollars and cents standpoint, it makes the most senseto pay down the card with the highest interest rate first.
Some consumer experts, however, urge people to attack the cardwith the smallest balance first because it can help get the ballrolling and keep it rolling. Once that first balance is paid off, focuson the card with the next smallest balance and so on.Close all empty credit card accounts. That way, you won't betempted to spend. The aim is to get down to one or two credit cards andstay there.Stash Some CashDon't forget to make room in your budget for periodic expensessuch as car maintenance, home repairs and medical bills. These expensesare inevitable. Cars, houses and even bodies break down from time totime.If you don't have some cash stashed away, chances are you'llend up charging up that credit card again. Months of chipping away atdebt can be negated in one swipe of the card.Ideally, every family should be able to get their hands onthree- to six-months' salary, but a $2,000 to $3,000 cushion is betterthan nothing.Other strategies for paying down debt include making biweeklypayments and freezing minimum payment amounts.You can cut interest and pay off your balance quicker just byfreezing your minimum payment. If your current minimum payment is $150,then commit yourself to paying $150 or more each month until your cardbalance is paid off. Your card company will drop your minimum paymentrequirement as you chip away your balance. Ignore it. Stick with yourfrozen minimum payment and watch your debt melt away.
Not convinced? Here's an example using Bankrate's thetrue cost of paying the minimum calculator. Let's say you have a $5,000 balance on a credit card with an18 percent interest rate. Your minimum payment is $150, or 3 percent ofyour balance. If you simply pay the minimum payment as determined by yourcard issuer, it would cost $4,799.06 in interest and take you almost 19years to pay off your balance. Yikes.By freezing your minimum payment at $150, you'll be able topay off your balance in just under four years and you'll save awhopping $2815.46 in interest. That's a lot of cash.Holding steady with card payments is a key part of thebiweekly payment plan as well. Here's how it works. First, you stop charging on the credit card. Then you makepayments every other week rather than every month, never decreasing theamount you pay until the card is paid off.Interest accumulates daily whenever someone carries a balanceon a credit card. Federal law requires credit card companies to processpayments the day they arrive. So the sooner you send in your payment,the less interest you're going to pay.Sending a half payment every two weeks results in 26 halfpayments, or 13 monthly payments a year. Paying this way gives you theequivalent of an extra monthly payment each year. Getting a portion ofthe payment in earlier each month knocks down some of the dailyinterest.
By making biweekly payments you use card companies' mostcommon moneymaking ploy -- that ever-ticking interest clock -- againstthem. How cool is that?So take a close look at your finances and pick a pay-down planthat will work for you. Bankrate's whatwill it take to pay off my credit card? calculator can helpyou plan. This calculator can tell you how long it will take to pay offyour card debt by freezing your current monthly payment. Want to payoff your debt in two years? The calculator can tell you the monthlypayment you need to reach your goal. Stick to Your PlanOnce you settle on a pay-down strategy, be sure to stick withit. Lots of folks start off strong and give up after a few months.Don't let this happen to you. Setting some shorter-term goals can helpyou stay motivated. Reward yourself when you've achieved them.Why not celebrate when each account is paid off with abill-burning or card-cutting ceremony? Involve the whole family. Madeit to the halfway point? Splurge with dinner out.Stay focused. Think of all the things you'll be able to dowith your money when that card debt is gone. It could be a vacation, anew DVD player, or longer-term goals such as moving into a new home orpaying for a child's education.If that's not enough of an incentive, just think of therelief. There's a kind of post-debt euphoria that comes at the momentyou stand up after clawing your way out from under a mountain of bills.The days of depending on those little plastic cards to makeyour life go are over.You're free.
Source: Money & Work
