Financial Tips | Debt Management

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11/7/07

How to Eliminate Credit Card Debt

There are many options you can use to eliminate credit card debt. Some of the options are fairly basic and will take time. Other options are extreme, and while they will eliminate your credit card debt, they will also heavily damage your credit score.

First, you can pay over time while eliminating credit card use. This is the most basic way to eliminate credit card debt. All you have to do is pay more than the minimum balance (and by more I mean 20% more than your minimum balance) while eliminating your credit card use. This means that you do not use any credit cards during the time period in which you are repaying the debt. What sense does it make to pay down one credit card while you are charging an equal or greater amount on another credit card?

It is important to note that you only want to stop using credit cards. You do not want to close the credit card accounts. Closing your credit card accounts will hurt your credit score and offer no benefits for you. Therefore, do not do it.

Second, you can call your credit card companies and ask for lower interest rate. This tip should be used in conjunction with the first tip. By lowering your credit card interest rate, your monthly payments will count more towards your principal. Thus, you will pay off your debt sooner.

Third, you could consolidate your debt. I am sure you have seen many of these kinds of companies advertising on television or on the radio. Basically, these companies call your credit card companies and negotiate a lower interest rate and a lower monthly payment. Your credit card accounts are closed (this is a negative because is negatively affects your credit score) and you send your monthly payment to the debt consolidation company. That company then sends your payments to the appropriate credit card companies. These consolidation companied are usually “non-profit” and take a small fee to cover “administrative costs.” Make sure you fully check out the company before giving them your business.

One other point on consolidation; your credit card companies will send you a letter once an interest rate and monthly payment have been negotiated. This letter will basically state that if you are late on a payment while you are using this debt consolidation program, the deal is off and your credit card will reset back to its original interest rates and back to its original monthly payment. Therefore, do not be late.

Last, you can file for bankruptcy. I am not going to pretend to be an expert in bankruptcy, therefore, if you choose this option, go see a qualified attorney. What I can tell you is that filing for bankruptcy will severely damage your credit score. Additionally, filing for bankruptcy will cost you several thousand dollars. The attorney fees for bankruptcy will be less than the interest fees you would have paid over the life of the debt (assuming the outstanding debt is large enough), however, bankruptcy should always be your absolute last resort. As I stated, if you have questions about bankruptcy, go see an attorney.

Many options exist for you to eliminate your credit card debt. Make your choice wisely because a wrong choice could damage your credit score for years to come.

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