How To Eliminate Credit Card Debt
DO make a budget listing all your fixed expenses. Rent or mortgage, car insurance, car payments, cell phones, utilities, day care, fixed loans, etc. Then try to estimate a reasonable budget for discretionary items like food, drinks, dry cleaning, etc.
DO make a second list of all your outstanding balances and sort by balance, minimum payment, and interest charges if you have multiple credit card debts.
You may think the wisest thing to do is paying off the credit card with the highest interest rate. However, there are 2 preferred methods to follow.
First, you should first reduce the number of credit cards. Pay off the smallest balance first with larger payments until the number of credit cards you have in debt is down to one. Your ultimate goal is zero, or when you can pay your monthly balance in full every month.
The other strategy is to pay the balance on any card exceeding 50 percent of your credit limit because balances above this level may cause your credit score to diminish.
DO use cash or a debit card from your checking account. You can’t spend what you don’t have.
DO look for extra income. Most likely your rent or mortgage is your biggest expense, so consider a roommate. If you like your occasional privacy, consider an International student for shorter periods of time.
Consider starting a Blog. Blogger and Wordpress blog platforms are free. If it becomes popular, slap on some Ads with Google Adsense. Your first payout will be issued when you reach $100.
DO look for the little things that add up in your expenses. Maybe change your cell phone plan if you are constantly going over the monthly minutes? How about that $2.75 Starbucks latte or cappuccino every work day? That’s almost $7,000 a year!
DON’T sign up with a new credit card with a 0% APR for the first 6 months.
You probably receive a lot of junk mail enticing you to sign up with a new credit card with a 0% APR for the first 6 months before it jumps to 24% or even higher. Then 6 months later you would transfer your huge balance to another piece of plastic. Unfortunately, the biggest risk is they are simply giving you more credit to spend, and the number of cards and liability increases.
Unless you are extremely disciplined, this doesn’t really work as you end up bigger and deeper in the hole! Reducing the number of credit cards is the goal.
DON’T get a consolidated bank loan to pay off all your debt.
Logically, a 12% bank loan APR is less than 24% APR on a credit card. It sounds like good advice, because you can’t spend what you don’t have. You will be asked to have all your cards cut up (except maybe one with a small credit limit) and you have reduced the number of credit cards.
However, your bank may not accept your loan application if they have no collateral, or if your Debt to Service ratio is too high. Often, a co-signer is often required. These types of loans are not like regular loans for a car or house where they can repossess it should you default on your payments.
But if you do choose this method and default on this loan, either your co-signer will end up footing the bill (and really getting them angry!) or losing your assets assuming you own one. The ultimate downfall is you might end up in bankruptcy. It’s better to upset one creditor than to lose your entire home.
The Bankruptcy Option
If you currently have unbearable debts and thinking of wipe it off from your statement by declaring bankruptcy; Just on-hold your decision for a while, there may be other options available. Try to improve your situation before you investigate the bankruptcy option. No matter which way you go, evaluate the steps below to see if you could avoid taking that drastic step.
Detail out all your debts
First, look at all your secured debts such as mortgage and car loan. How much are the repayment for each month? What are the interest rates?
Then, list down all the fixed expenses such as power, phone, insurance, food, etc. What are the total costs for these expenses?
Follow by examining your credit card debts. Take out all your credit card statement and write down the amount you owe for each card and their interest rate.
Finally, write down all your other expandable; these are your optional expenses such as entertainment, gym, membership, dinners at restaurant and other impulsive purchase.
Eliminate the unnecessary expenses
Now you should have a better idea on where your money goes; Make a diet plan on your cash; In your Cash Diet Plan, list down all the your savings from the elimination of the optional expenses. You will be surprise that how much money you can save by carefully control your expenses. The money you saved can be used to pay down your debts.
Get your family involve and work as a team
Don’t do it alone because under such as stress condition, you may out of control and may not think and plan in clear mind; get your family together and let them know your financial problem and have them to work together to control the household spending and eliminate the unnecessary expenses.
Cash out with your assets
If you have equity, you are in a better situation because you could refinance or get a secured loan for pay off your debts. If you are looking for bankruptcy as your debt relief options, your may not have any equity in hand already. But equity is not the only asset; many people tend to forget that things that have cash value, but not sentimental value. Think antiques, old clothes or collectibles.
List down all the assets you own which your can sell and cash out. Check the closets, garage and storage locker, she says, and find out what you can live without;Then, cash them out through garage sales, eBay or consignment shops. Use the money to pay down your debts as much as possible.
Go for consumer counseling service
Arrange an appointment with a credit counseling agency and let the counselor to understand your finance situation and draft a budget for you. Review the debt consolidation proposed to you before your sign to enroll into the plan. You may get a few plans from other credit counseling agencies for comparison. Choose the one which best suit your current financial needs. Although a debt-management plan can have a negative impact on your credit, it’s better than bankruptcy.
Get A second or part time job
Utilize your out-of-work time on second or part time job. Although you may not earn much in your part time job, a little money coming in can keep a bad financial situation from getting worse.
Bankruptcy may be your easy way out from debts but the consequences may follow you for 7 to 10 years. Always look for other alternative before choose for this dramatic options.