5 Surefire Ways To Eliminate Credit Card Debt.
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Credit card companies will probably not help you eliminate credit card debt. The reason is the fact that credit card companies make most of their money through the interest that they collect on credit card debts. A study reveals that in the year 2006, the profit made by credit card companies through interest alone was close to a hundred million US dollars! This is why a number of companies do not encourage credit card debt consolidation. There are ways to legally eliminate credit card debt. To know more about how you can eliminate credit card debt and its legal aspects, read on.
Do you have enormous credit card debt? You are certainly not alone. According to research, the average family in the United States has $7000 in credit card debt and pays about $1000 in interest each year! Throw in a late payment or two, or an over-the-limit charge, and that number skyrockets. Imagine what you could do with that $1000 if it weren’t being spent on interest.
Let’s imagine for a moment that you have $5000 debt on one credit card that is charging you 17.5% APR. Let’s also imagine that you pay only the minimum due of $25/month on this card. Guess what? You will never pay it off! The interest alone on this card is $73/month!
A number of individuals opt for an easy home equity loan to pay off their credit card debts. This mode of credit card consolidation would be advisable only in case your credit card debt has not already skyrocketed. This approach is highly popular in the face of the fact that the late fees and interest rates charged by most credit card companies are simply atrocious. An untimely repayment can cost you a lot, quite literally. Your financial advisor may not advice you to go for this option as you may land up using your credit card again to make up for the deficit in your finances caused by the new loan. If you are on a stable salary package then you can latch on to a credit-counseling firm. This is one of the alternatives available to you to legally eliminate credit card debt. Through this approach, you commit yourself to pay a certain amount every month to the firm that you are attached to. The credit card debt consolidation company on the other hand takes up the responsibility of distributing your funds efficiently to all the credit card companies you need to repay.
That means that each month you get further and further into debt. By the time you have been paying on this $5000 for 10 years, assuming you have not used the card during this entire period of time, you will owe $20,385! That’s over $15,000 in interest. If you triple your payment to $75, it will take you over 20 years.
So, what do you do? How do you get out of debt and use that money towards other necessities, savings, and investments? Here are a few simple methods that you can use without having to go to an expensive financial counselor.
1. Cut Up Your Cards.
The very best way to reduce your credit card debt is to STOP using your credit cards! There is no need to have more than one card, so pick the one with the lowest interest rate and cut up the rest. The one you keep should be deemed an ‘emergency card.” These are true emergencies, not mere inconveniences. For instance, buying a new TV would not be an emergency, but renting a car in order to get to the bedside of a dying loved one would be.
To eliminate credit card debt you can use debt settlement as one of the last alternatives for credit card consolidation. If your condition is so bad that even the payment of your monthly bills is becoming a problem, you can then opt for debt settlement, the most effective way to legally eliminate credit card debt. The credit card company in this case can reduce the repayment amount by as much as fifty percent and may even accept the sum in five or six installments.
You can carry your emergency card with you, but don’t make it too easy to use. One good suggestion is to cover the card tape and paper and write on it. For Emergencies Only.
2. Move Your Debt.
If you have more than one credit card payment, you may want to consider moving debt from a card with a higher APR to one with a lower APR. This will lower the amount of money you are spending towards the interest and get you out of debt faster.
The other option available of course is declaring bankruptcy. This should really be your last option as it completely messes up your public record. To legally eliminate credit card debt through the declaration of bankruptcy, you must make sure you have the aid of a good bankruptcy lawyer else, your case may go horribly wrong… [read more]
3. Use the Snowball Principle.
List all of your credit card debts, and the amount you are paying each month. Pay off the lowest amount first. Then use that money to start paying off the second lowest amount. And then the next and the next. Let’s look at an example.
If you have a $7000, $5000, and $2000 card with payments of $150, $125, and $100, you will finish paying off the $2000 card first.
Having good credit can allow you to use a multitude of options to eliminate credit card debt. Homeowners can utilize equity in their home to either refinance their existing mortgage or secure a home equity loan. This can allow you to borrow money at a low rate There are some potential tax benefits also which your tax adviser can help you to determine. The danger is that securing an unsecured debt is a risk, which should be considered carefully.
Once it is paid off, you take that $100 and put it towards the $5000 credit card. That means you are now paying $225/month. You have increased your payments which will pay off that credit card sooner and will have you paying a lot less in interest. Once that is paid off, you apply the $225 to the $7000 card, making your monthly payment $375. This will greatly accelerate the payment of this card, reducing your interest payments even further. When everything is paid off, you now have $375/month extra to put towards savings or investments!
If you are not a homeowner or lack equity, then some personal loans might help, but the rates tend to be higher. Also, the lending limits tend to be smaller. This may not give you enough available funds to eliminate all of your outstanding credit card debt balances.
4. Prioritize Your Debt Repayment.
One of the best ways to pay off your debts is to get rid of the highest interest payment first. Looking back at the snowball example, you took the lowest and paid it first. If, however, the $2000 card had the lowest interest rate, you would want to pay off the card with the highest rate first. This will save you much more in interest payments.
Once your credit score has suffered, then a loan will not help you. Lenders charge a higher interest rate to compensate for the higher risk of lending money to you. That higher interest rate will not save you money, unless your credit cards are all at the default rate.
If the math gets too hard here, don’t despair. There are many places on the Internet where you can find good debt reduction calculators. It is then just a matter of punching in your numbers and reading the report.
5. Consider Consolidation.
If you own a home, you may want to consider consolidating your debt using a home equity loan.
If this happens, then you might want to consider calling a reputable credit counselor. Established credit counseling agencies that have a good track record tend to be better than those that exist only over a phone. You will want to ask about meeting with a counselor face-to-face. It’s OK to work over the phone if you need that flexibility, but you would want to ensure that they do a substantial portion of their counseling sessions in person… [read more]
Since a home loan is a secured loan (they can take away your house if you don’t pay) you have a much lower interest rate than you do on your credit cards. Paying a lower interest rate is always a good thing! Not only that, but the interest you pay on your home loan is tax deductible. This is NOT true for credit cards.
By following these tips, anyone can take control of and completely eliminate credit card debt.
Source: credit-debt-consolidation.net
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