Digging Out from Credit Card Debt
I don’t own a credit card anymore. I used to own several, but like many Americans, the sweet temptation of plastic proved too much for me. I wound up carrying large balances on multiple cards from one month to the next. Credit, which had seemed so liberating, was now suffocating me.
It’s possible to dig yourself out of credit card debt, but it takes time, patience and a willingness to negotiate with credit card companies. Here are a few suggestions to get you started, from someone who’s been there.
Making a List, and Checking It Twice . . .
Your first step is going to feel overwhelming. Write down all a list of all outstanding debts. Include the credit limit, the amount on the card, interest rates and minimum payments.
This is rarely an uplifting experience. It’s disturbing and upsetting to see your debt laid out in stark terms, right in front of you. It’s necessary, however, so you can see exactly where your money is going — and who’s charging you the most for outstanding debt.
Time to Find Out Who’s Naughty or Nice
Now it’s time to call each credit card company and negotiate a debt reduction plan. How well this turns out depends, in part, on how well you’ve kept up with payments. Creditors are more likely to look favorably on you if you have a history of paying at least the minimum amount on time every month.
Explain your situation, and be honest. Ask if the company is willing to suspend interest for a time, reduce interest rates or accept a lower minimum payment. Be polite but firm. If your first contact refuses to help, ask to speak to a supervisor. If she isn’t willing or able to help, ask to speak to her supervisor. Call back in a few days if you get no help; you might eventually connect with someone more willing to assist you.
This tactic works more often than you’d think. Remember the credit card company wants to gets its money. Reducing interest rates causes them less financial damage than hiring debt collectors.
Credit Reduction Is Coming to Town
Now you need to choose a card to pay down as fast as possible. Before you do, however, make sure you avoid the temptation to continue using cards. Cut them up, put them in a safety deposit box or whatever — but do not use them.
Some experts recommend starting to pay off the card with the highest interest rate, as this is the card that will cost the most interest per dollar. While that’s certainly an option, you might also want to consider starting with cards with lower amounts, to give you some early successes and motivate you to continue.
Whichever card you start with, make the maximum payment you can on the card while making minimum payments on other cards. Once you get one card’s balance down to zero, start on the next card.
Automating payments can make the process easier. You pay a set amount every month on the balance. By automating the process you’re not tempted to spend the money on something else.
Do You Keep Cards?
Canceling cards after paying them off may seem like the best choice, but has its drawbacks. Cancelling a card increases your utilization ratio, the ratio of available credit to debt and can adversely affect your credit score. If you can handle the temptation, keep a couple of cards with clear balances to maintain your credit.
Of course, this only works if you don’t use the cards. In my case, credit cards were like a drug — if addiction treatment programs recognized debt as substance abuse I’d have checked into one. Knowing I couldn’t resist the temptation to use them, I cancelled each credit card as I paid it off. It dropped my credit worthiness, but it also dropped my debt — which I call a win.
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Category: Credit Cards
