The answer to your credit card debt
Getting out of credit card debt is an issue that almost all Americans are facing these days. With the recent down turn in the economy, the number of people dealing with large amounts of unsecured credit card debt is growing at an alarming rate.
While seeking to find an answer for how to get out of credit card debt can be frustrating and mind-numbingly complex, there is hope.
With the right combination of determination and planning, you can achieve your goal of how to get out of credit card debt.
Evaluate your financial situation
The first step is to carefully evaluate your situation. Take stock of your financial standing and look for where you currently stand financially.
Consider the different ways that interest charges can creep up on you and what it will cost you if you are forced to pay off balances and fees at the end of the month when interest charges are due.
Some experts recommend paying just the minimum balance and avoiding additional fees.
However, the important thing to keep in mind is to determine whether you will actually be able to keep your minimum balance and avoid accumulating more debt or if you will need to cut back on spending to pay off balances quickly.
Find out your options
The second step in getting out of credit card debt is to do your homework. Do your research.
Look at your current spending habits. Write down your expenses and put together a monthly budget. Once you have a tangible list of what you need to spend on each category, you can take action.
Try a personal loan or a credit card consolidation loan
If you have collateral (e.g., a car), you may find that you can get out of debt faster by seeking out a personal loan.
Look for a lender who is willing to take less interest than you are currently paying and then shop around for a personal loan with the lowest possible interest charges.
If you are trying to accumulate credit card balances for emergency purposes, a credit card consolidation loan should be able to work for you. You will pay off one lower interest rate credit card and have one lower payment to make each month.
Rebuild your credit score
As you consider how to get out of credit card debt on your own, it is also important to realize that you will need to rebuild your credit scores as well.
If you cannot consistently make payments on time, your credit scores will suffer.
Before you start to work on your financial recovery, it is important to know where your scores currently stand. Then, you can determine which steps will raise your credit scores the most.
Consider an amortization plan
One option that many people turn to when their debt piles up to overwhelming levels is what is called an “attempt at recovery” or “amortization plan.” An amortization plan calculates your monthly payment and divides it by a number of monthly minimums.
Generally, the process works like this: you make a single payment, the total goes towards paying off all of your high interest credit cards, and then you begin making smaller payments until your debt is paid off completely.
This is a good option for people who need to quickly begin turning their finances around. Unfortunately, it does not always work. An attempt at recovery requires you to make payments on a regular basis in order to get through the difficult first few months of living debt free.
Debt relief and debt consolidation
Another option that some people find helpful is debt relief. If you are neck-deep in high interest credit card debt and are struggling to make your minimum payments, you should consider using a debt relief system in which you slowly pay down your debt.
Debt consolidation is another option, and it works in much the same way as an amortization plan. You take out one loan with a lower interest rate and use the money to pay off your high interest credit cards. Then, after paying off the loan, you repeat the process over again.
The avalanche method
The final option, and the one that we recommend for our clients, is called a “battered debt elimination” strategy.
Essentially, if you have a large amount of high interest rate credit cards, you should consider using what is known as a “debt avalanche method.”
In this strategy, you essentially make a massive list of all of your credit card debts and make a plan to eliminate the one with the highest interest within a specific time period. As you go through your list, each of your credit cards will have a balloon payment due that can eliminate debts completely one by one.
In this manner, you will be able to eliminate your debt by focusing on one debt first. Although it may be slower than the snowball method, you’ll see big savings in the end.