Credit Card Debt : Paying Yours Off

October 17th, 2007

If you find yourself dealing with credit card debt, apparently you’re not alone. It seems to be a frequent topic on TV, in magazines, and in the conversations of friends and family.

During such a family conversation, I was asked to give my thoughts about getting out of credit card debt. I’m not a professional financial advisor, so I cannot give financial advice, but I do have some opinions based on my personal experience.
Credit Card Debt : Paying Yours Off
Once you have large credit card balances, it can be very hard to pay them off due to the high interest rates and late fees that the credit card companies can charge. Your first task should be to negotiate with the credit card companies. Ask to have the interest rates reduced and/or the fees waived. Secondly, you must pay more than the minimum payment due each month.

Now the really difficult step has to be taken. Commit yourself to paying cash. Stop using the credit cards. If necessary, remove them from your wallet so that you are not tempted.

Because you are now paying cash, you cannot spend more than your income. It’s necessary to prepare a budget in order to see how much over the minimum due you can pay each month. If your budget shows that you have more expenses than income, you’ll have to either reduce those expenses or increase the income. It is surprising how slashing even the small expenses can make a difference. For example, eating out in restaurants and buying expensive coffee has become a way of life for many families. Perhaps it’s possible to forgo some of these luxuries in order to reduce your debt.

I don’t think that using debt is the way to pay debt. However, if your expenses cannot be cut and/or income cannot be increased, you might consider an option such as a consolidation loan. If you are forced to look at this option, be sure to do your homework. Know what the loan payments will be and over what period of time. Your goal should be to have your payments go down.

To summarize my plan:

Stop using the credit cards; Pay cash

Work with the credit card companies to reduce interest rates and fees

Reduce expenses and/or increase income

Pay as much as possible over the minimum due each month

It’s true that my personal plan for paying off credit card debt does not reveal any fancy financial secrets, that it is based on old fashioned hard work and discipline, but it worked for me. One last thought. If the debt was due to overspending and not an emergency, such as health care, the extremely tough task of not going back to old habits will now begin.

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