Getting Out of Credit Card Debt
There are many burdens in life but credit card debt and debt in
general is one of the most unpleasant ones. You find yourself in a
tough situation – you have spent more than you could afford and
now you have to squeeze each cent in order to make both ends meet.
And what is worse, in most cases getting out of debt is a slow and
painful process, even when you know what to do. And if you are at a
loss and have no idea how to proceed, the agony could last very, very
If you are heavy in debt, you might need to find a professional
debt counselor, who will make a detailed plan how to proceed but if
you are still not drowning in credit card debt, there are several
basic steps you can take:
Pay more than the minimum. You might live with the
illusion that paying the minimum is enough to get you out of debt.
Yes, sooner or later you will be able to pay off your debt
completely but in the meantime you will have paid so much interest
that you might end paying twice or even three times the initial
amount. It is a basic truth that the longer you pay your debt, the
more interest you will be charged. The results can really be
shocking, as seen from the examples in this
article. Needless to say, it is best if you can pay your whole
balance but if you can't do it, paying as much as you can is also
Pay the higher interest rates debts first. As already
mentioned, interest is accumulating slowly. So, if you have a credit
card debt of $2,000 and the interest rate is 20% and a $2,000
personal loan with an interest rate of 7%, start with the credit
card debt. Depending on the time period for repaying, this can save
you between $50 and $400.
Consider a balance transfer card. The idea of
transferring your existing debt to a low-interest or even a zero
rate credit card is similar to the other options that involve
reducing the interest rate payments. Basically, you get a bargain
balance card and transfer your existing debt to it. This way you
save because you pay less interest.
Other refinance options. Balance transfer cards are
not the only refinance options. Refinance
is a growing market and many financial institutions offer various
financial products that help you pay less interest. This is the
basic idea of refinancing – you borrow money at a lower
interest rate in order to pay your old higher interest rate debts.
However, be careful when you refinance because there are charges, so
if you see that the interest rate is low, consider that it might be
compensated by other expenses.
Consolidate your debts. Debt
consolidation is also a good idea, especially if you have many
credit cards and they become difficult to manage. Again, the idea is
that you consolidate all your debts into one and your new debt has a
lower interest rate than the interest rates of your other debts.
Clear your savings account. If you have money in your
savings account, withdraw it and use it to pay your credit card
debt. You might be reluctant to do it but since the interest rates
that are charged on savings accounts are many times lower than the
interest rates on credit cards, it is not wise to keep money in your
savings account. Instead, you can use it to repay your debts and
later, when you are debt free, you can start saving again.
Cut off your expenses. Probably this is the very first
thing one should do when he or she is in debt. By cutting your
expenses and not indulging in luxurious life-style, you can save
even more than by refinancing, balance transfer cards and the like.
Living frugally does not mean that you will deprive yourself of
vital things but if you don't spend like mad, you will soon discover
how much you can save.
Borrow against your life insurance. If your life
insurance has a cash value, borrow against it. You are borrowing
your own money and generally the interest rate will be lower than
the market rates. Well, if you die before you pay it back, this will
be a burden for your heirs but credit card debts will also be a
liability of them, so actually it is more or less the same.
File for bankruptcy. Well, if there is nothing else
you can do, you can consider this as an option. Filing
for bankruptcy has many disadvantages but if you really can't
pay your debts, this might be your last resort to break even and
start a new life. You might lose most or all of your property and
the stain of bankruptcy will be on your credit report for ten years,
so it is really important that you file for bankruptcy when you
really, really have no other choice.
There are many more steps in addition to the ones above that you
can take in order to break debt free. So, as you see, there is really
a lot you can do. Additionally, you can combine two or three of the
above methods, this speeding the process further.