Three Ways to Eliminate Credit Card Debt

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Three Ways to Eliminate Credit Card Debt

If you're buried under a mountain of credit card debt, it's time to take action. The problem will keep getting worse as the interest rates and late fees combine to increase how much you owe each month.

Cut Expenses and Pay Down Debt

Work through your budget to uncover any areas where you can cut spending. Go back through your credit card purchases, debt and cash purchases to see where the money is going. You might find that you can do without the premium TV channels on cable because you can watch what you want on the Internet. Make a goal of cutting back expenses by 15 percent per month and use that money to pay off credit card debt. 15 percent might not sound like much, but if your expenses are $3,000 per month that's $450 per month. In one year you'll have paid down your credit cards by $5,400 and saved upwards of $1,000 in interest you didn't have to pay.

Debt Consolidation Loan

If there is enough equity, at least 20 percent, but probably more like 30 percent, in your home, a second mortgage might be feasible. The proceeds of that loan are used to pay off the credit card balances and your other debts. Since the second mortgage usually has a lower interest rate than credit card accounts and a longer repayment period, the payment will be lower than the total of payments on your credit cards. The downside is once the accounts have been paid off, it's tempting to start using the cards again. It's not a good idea to close the paid off accounts because that lowers your used credit to available credit ratio. That ratio is one of the factors that determines your credit score.

If you're having trouble making ends meet even without paying your credit cards it's time to get credit card debt help

Debt Negotiation or Settlement

It's great if you can generate enough money every month to make a substantial payment on your credit card accounts. Unless that payment is $1,000 or more it will take several years to pay off every account. While you're making the payments the high interest rates still prevail. If your balance is $10,000 for example you'd pay $2,800 in interest at a 28 percent annual rate. Debt settlement is negotiating with each creditor to accept an amount that's less than the total amount you owe. The creditor must be convinced that there is no possibility that the full amount can be paid. Why would a creditor do that? If you've been missing payments, skipping payments and your credit score is falling, the creditor may feel you're headed for bankruptcy. If you do that the odds are the creditor won't get anything. If talking with each creditor, perhaps several times is not something you feel qualified to do, then seek the services of a company, such as www.payingpaul.com that will negotiate for you.