1) Cut Your Spending With Credit Card
Reducing the use of credit card is difficult but it is the best way to lower your credit card debt. You can prepare a weekly or monthly budget and make purchases within the budget to limit your spending. Reducing the expenses on necessity goods and services are almost impossible. So your target for reducing your expenses will be the spending on your ‘want’ such as luxury goods and services, clothing, entertainment and so on.
2) Pay Off The Debt With the Highest Interest Rate First
Concentrating on paying the balance of the credit card with the highest rate first will help you save money in interest payment. You can do this by paying the minimum balance on each card except the one with the highest interest rate. On the highest-rate card pay more than the minimum balance. After clearing the balance of the highest-rate card, you can proceed to pay off the second highest-rate one and continue to do this until all credit card debts are paid off. If you have problem paying extra, you may consider reducing your spending as suggested above to come up with some extra money for the purpose of paying off the credit card with highest interest rate.
3) Contact Your Creditors
You can try to call your credit card issuers to explain your situation and ask them whether they can lower the interest rates. If they agree, the amount you pay each month will be more to principle and lesser to interest and thus eliminate your debt faster. If they refuse to give a lower rate, try to apply for a new low-rate card. You can shop online to get the lowest rate possible. Don’t forget to check the fine print to make sure that the rate lasts for a long period, and is not just a teaser rate that lasts a few months. After getting a new low-rate card you can start transferring the balances from high-rate cards to the new card. If possible officially cancel all the old cards after the transfer to ensure that you will not overuse your card cards in the future.
4) Keep Your Credit Limit Down
Credit card companies often will increase your credit limit which could potentially increase your debt in the long run. If they do increase your limit, just call them back and inform them you don’t want it.
5) Debt Consolidation
If the above tips can’t help you, you may consider debt consolidation. There are two basic choices to consolidate debt. You can apply for a debt consolidation loan to pay off all your existing debts or use a debt consolidation service. A debt consolidation loan will eliminate all your existing debts and allows you to make one lower monthly payment until you are out of debt. It will be a lot easier to obtain a debt consolidation loan with far lower interest rate than credit card interest rate if you have properties for use as collateral. However you face the risk of losing your property if unable to maintain payment.
On the other hand, there are two types of debt consolidation services. If you’ve decided to use a debt consolidation service, choose a non-profit debt consolidation service because if a service isn't non-profit they will usually charge a monthly fee. Debt consolidation service typically offers counseling services and will negotiate on your behalf for a new repayment plan (usually with lower interest rate and fees) and after that you'll make a monthly payment to the debt consolidation Company / agency, which will pay all you creditors. You should be able to get rid of all your debts in three to six years if you stick to the plan. But be careful which agency you work with, if the debt consolidation agency make late payment, you'll pay the price as you're still responsible to the lenders.
Published by Alan Liew on May 25, 2006 08:18 PM
