Nov 30, 2011

Using self control to conquer your Credit Card Debt

United States citizens have a reported total of $886 billion in credit card debt in the year 2010 and the amount is forecasted to rise up to $1.177 trillion total. Each card holder is estimated to have over $5,000 in debt. Even though the state of the economy has taken a nose dive, TransUnion, one of the three large credit reporting agencies, reported that the number of delinquencies dropped by 17% in 2010. This shows that credit card holders are becoming more responsible and acknowledging that debt needs to be paid off when due.

Debt with cards is primarily due to high unemployment levels in the economy. When people lose their jobs, they focus first on paying items such as mortgage and food and place the credit card payments on the back burner. The resulting late fees increase the overall balance of the card, cause higher payments and make it difficult to catch up on.

If you're one of the millions of people that carry some type of debt on a credit card you don't have to worry about the debt looming over your head the for the rest of your life. A primary reason that many cards take so long to pay off is due to annual fees and interest that accumulate. Credit card companies received over $18.1 billion in penalty and late fees in 2007 from revolvers, or people that don't pay their debt off in full each month. If you're one of these individuals that are giving your hard-earned money away each month unnecessarily, harness self-control and combat the debt with a plan of action.

Make a listing of all credit cards you currently have and include the outstanding balance, minimum monthly payment and the interest rate. All of this, plus more, can be found on your statement you receive each month either in the mail or electronically on their web site or through your email.

Arrange the list of cards from top to bottom with the one with the highest percentage interest rate at the top and the lowest at the bottom. Don't be fooled by thinking that the card with the highest overall balance is the one costing you the most money.

Total the minimum monthly payments due on each card. This is the absolute minimum of money you need to pay on the cards each month. Look deep into your budget to determine if you can scrounge up a little extra to put towards the overall balances of all cards. Each month, pay the minimum monthly payment on each card except the first one. Apply any extra payments you can afford each month to the balance of the highest interest rate card until you have it paid off completely. Then follow the same theory for the other cards until they're paid off in-full. This process is known as snow-balling and the process can be applied to more types of debt than just credit cards.

Be proactive and call the companies up. Once you begin paying on them faithfully, and have no delinquencies and past-due balances, ask for a courtesy decrease on your interest rate. There is no harm in trying. The worst they can do is to say no. This can save you hundreds and even thousands of dollars over the life of the card.

Consider getting a balance transfer on one or more cards. Many companies will offer to do a balance transfer with a low or no interest rate for a limited time, like 6 months. 6 months of interest charges is a large sum when calculated on a card that already has a large existing balance. Don't do this frequently, since opening and closing accounts on a regular basis can actually damage your credit, but it's acceptable for one or two cards, especially if the interest rate difference is drastic.

The largest self control you need to get out of debt is to avoid using the cards. Don't use them if you can't pay the balance off in full each and every month. If you have problems with keeping them in your purse or wallet, leave them at home. Another option is to cut them up completely, if you don't intend on using them ever again, or place them in a sandwich baggie filled with water and stick it in the freezer. This way if you have an impulse to buy something, you have to wait for the block of ice with the card in it to unthaw itself. If the purchase is really that necessary, and not a luxury which helped contribute to your overall debt, it can wait until the ice has melted.

Have self control over yourself and don't apply for any new credit cards in order to increase your spending power. Spending money that you have to pay back only places you further into debt and contributes to the problem. Another way to avoid using cards is to build up an emergency "rainy day" fund, which you can turn to when you fall on hard times financially. Instead of placing that emergency medical bill or car repair bill on a credit card, use money you have saved up so you don't have to pay interest on anything that you spend.

Get someone else involved in your plans to get out of debt. Many times it's easier to follow through on a goal if you have a partner to give you encouragement and keep you on the right track. You may also learn how to manage your debts on your own with the assistance of a credit counselor or by taking a class on credit and debt management.

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