Credit card debt is the number one reason Americans lose their homes, their savings, and have to eventually declare bankruptcy (Chu, 2008). Credit card debt is also the cause of stress in many relationships and is the direct or indirect cause of many divorces (PRLog, 2008).
Banks make their money by keeping consumers in perpetual debt. Learn how to eliminate escalating debt as fast as possible.
Pay Card With Higher Interest Rate First
There are no exceptions to this rule. A higher interest rate will always cost more money in the long run.
Debt Consolidation
Should a consumer consider switching debt from one credit card to another? Check the fine print before transferring a balance. Often credit card companies try to sweeten the deal by advertising zero to very low interests rates on balance transfers for a period of time. Then after the time period is up the amount of debt left is charged at a usually much higher rate of interest. This situation is only a good deal if a credit card consumer can pay the amount of the debt in full at this low rate, otherwise they run the risk of accruing higher interest rates on the debt.
Debt Relief Companies
Many of these so called debt relief companies are downright scams. They sound appealing to people who are drowning in debt and desperate to decrease their monthly bills. Consumers need to be aware that the Federal Trade Commission (FTC) has sued many of these debt relief companies for fraudulent activity (FTC, 2008).
But even if a credit card debt relief company has been thoroughly checked out and is deemed a reputable business, this type of company cannot do anything a consumer can do for themselves. A debt relief company does not wave a magic wand to wipe out credit card debt. The most they can do is lower the annual percentage rate (APR). The enormous fees that a debt relief company frequently asks for will only add to a consumer's debt problem.
Negotiate Credit Card Debt
Many people find it unbelievable that they can negotiate their credit card debt. If a consumer finds that the current interest rate on their credit card rate is too high, they can call the bank and ask for a lower rate.
This tactic works particularly well for consumers with an excellent credit rating score. An excellent credit score is considered to be 750 and above. Why this works for consumers with an excellent credit score is because banks know that people with these scores are extremely punctual about paying their bills – they always pay on time to retain their excellent credit score. The banks know they can always rely on these consumers to get their money.
Credit card holders can ask for a lower rate, and if denied a lower rate can state that they will then do business elsewhere (transfer their balance to another card). This is the last thing a bank wants to hear, because it's better to get a smaller amount of money from a credit card holder than nothing at all.
Monitor Finance Charges
Finance charges are listed on the bottom of a credit card holder's monthly statement. Banks sometimes have a sneaky way of increasing interest rates, so it's a good idea for a credit card holder to continually monitor these charges.
Credit card debt will reduce a person's freedom to do what they want with their money. It can be difficult to get out of debt once a credit card holder has racked up a substantial sum, but with a little financial know-how and persistence it can be accomplished.
Sources Cited:
Chu, Kathy. (2008, March 30). More Americans using credit cards to stay afloat. USA Today. Retrieved April 12, 2009 from http://www.usatoday.com/money/perfi/credit/2008-02-28-credit-cards_N.htm
Federal Trade Commission. (2008, October). Credit Repair: How to Help Yourself. Facts for Consumers. Retrieved April 12, 2009 from http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm
PRLog (Press Release, Apr 6, 2008). Credit Card Debt May Be the Leading Cause of Divorce. Retrieved April 12, 2009 from http://www.prlog.org/10062394-credit-card-debt-may-be-the-leading-cause-of-divorce.html
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