It’s all too easy to get overwhelmed by credit card debt. Carrying a substantial amount of debt is a destructive force that hangs over your head, curbs your earning potential, and limits the choices you can make in your career and your life. Even so, a debt-free life is not an unattainable goal, no matter how much money you currently owe your creditors. There are a number of simple steps you can take to eliminate your credit card debt, repair your credit score, and break the poor spending habits that have gotten you into debt in the first place.
The first step to eliminating credit card debt is to be honest with yourself about how you’ve gotten into this position. It can be embarrassing to admit that you’ve stretched your income to the breaking point and can no longer afford to make the minimum payments on one or more credit cards. However, unless you face up to the reasons you have ended up in debt, it will be impossible to create a realistic plan to get out of it. Swallow your pride and start making a repayment plan that will lead you to a debt-free life.
Once you have created your repayment plan, you must be absolutely committed to succeeding. That means sticking to your new budget, forgoing the use of the credit completely, and making the necessary sacrifices. Remember that getting out of debt is a long process that can take years to complete. There is no quick fix that will make your debt problems disappear (and beware of anyone who says otherwise). The good news is that if you’re truly diligent about following your repayment plan, you will learn the valuable money management skills that will keep you out of debt in the future.
Now that you’ve decided to repay your credit card debts in full, there are several ways of making it happen. You can create a debt payment plan, either by yourself or with a third-party credit counselor, apply for a debt consolidation loan, or work with your creditors to make reach a settlement. Which of these solutions will work best for your particular situation depends almost entirely on your level of debt and ability to pay.
Self-Help Debt Payment Plan
If possible, creating a debt repayment plan only our own is almost always the best way to go. This is due to the fact that you will be saving yourself the extra cost of paying a professional organization to assist you. In addition, continuing to make the minimum payments will keep your credit score from being negatively affected and prevent your account from going into delinquency.
Creating a debt payment plan consists of a few steps. The first step is to total the amount of debt you owe. This can be a scary prospect, but it’s impossible to create a realistic repayment plan unless you know the exact dollar amount you are obliged to repay. The second step is to calculate your monthly income and fixed expenditures, such as living expenses. Listing your expenses will help you prioritize your money and figure out where the majority of your income should be spent. After you have completed the first two steps, you can start creating a realistic budget and repayment plan.
While creating your repayment plan, you should list the credit card debts in order from lowest to highest. Decide which card you want to pay off first and start making larger payments on it, while continuing to make minimum payments on all of the rest. Paying off the card with the highest interest rate first can save you money in the long run, but many people choose to pay off the card with the lowest balance first as it helps them get the momentum going on repayment.
You may find that your income is not large enough to cover your basic living expenses and your credit card bills. If so, you’ll have to make some changes – and fast. If you cannot stretch your income to cover both your debt and your living expenses, you may have to turn to to debt consolidation or settlement in order to eliminate your credit card debt.
Debt Management Plans & Credit Counseling
If you’re not disciplined enough to set up a repayment plan and stick to it, you may need to seek professional help. Professional credit counselors can help you create a debt management plan, a financial tool that has helped many people eliminate their credit card debt.
With a debt management plan the debtor works with a credit counselor to negotiate with card issuers and find a solution that works for both parties. The debtor then deposits a monthly sum with the credit counseling agency, who then pays out a specific amount to the card issuers each month. The downside to enrolling in a debt management plan is that it will negatively affect your credit score. Debt management plans are better suited for individuals who have already suffered damage to their credit score and have one or more card accounts in delinquency. In addition, look out for any credit counselor or debt relief agency that promises to rid you of credit card debt in a number of months without having looked at your finances. Like the credit card companies, these people are only after your money.
Debt Consolidation & Debt Settlement
Debt consolidation is a strategy where the debtor takes out a large loan in order to pay off all existing credit card debt. The interest rate on the loan will be lower than that on the credit cards, which will save you money in the long run. Generally, this loan changes unsecured credit card debt into secured debt in the form of a home equity line. While consolidation may seem like a quick fix, it can actually be more dangerous as defaulting means your home will be in danger of foreclosure. When you choose debt consolidation, you are not actually paying off the debt but moving it to another institution.
Debt settlement is somewhat different. It involves working with your creditors to reduce the principle balance on your card. This solution is best suited for individuals whose accounts have already become delinquent. Once you have missed several payments, the card issuers will become concerned with recovering as much of the balance as possible. They will be more open to negotiation and may settle for receiving 25% or more of the original debt. Settlement does negatively impact your credit score, but it can save you from having to declare bankruptcy.