How to Unbury yourself from a Mountain of Credit Card Debt
For millions of Americans and even more folks around the world, the specter of life crippling credit card debt snuck up on them like a thief in the night. One day, they are paying their bills, saving a few bucks here and there and are otherwise content with life. And then, in a flash, it can all change. For some folks it can be a health crisis or an accident that changes everything, for others, it can simply be a case of reckless spending and bad decision making. But regardless, the idea for millions of people is to simply declare bankruptcy and start all over. But there are other choices. Through smart budgeting, taking responsibility for your mistakes and hard work, you can unbury yourself from the weight of credit card debt that you’ve made. Here is how you can do it.
The first step is to simply make a budget. This may not sound too difficult, but a surprising number of people live without one and just live paycheck to paycheck. If you can sit down and chronicle how every penny comes into and goes out of your life, you will be one step closer to reigning in your credit card debt. Unless you work in an industry that runs on bonuses more than salary, you can confidently estimate exactly how much income you have coming in, and by using the previous month’s bills, you can get a clear idea of how much you have going out. This will tell you how much extra income you have and how you can redirect that income to paying off your highest interest rate cards first.
And speaking of high interest rate cards, you basically have two choices when it comes to them: transfer the balance to another, lower rate card, or pay it off as quickly as you can. Not only will this supercharge your credit score, but you will help to eliminate the biggest drain on your financial well being. Even if you have to start small by only sending in an extra 10 dollars, then the month after you send in an extra 20, every dollar helps to get you one step closer. You have one more trick up your sleeve, as well. Most credit card companies, when faced with the choice of losing you forever as a customer because you transferred your balance to another card company and lowering your rates and improving your terms will choose option number two. Call them and let them know you are mere seconds away from mailing the transfer application unless they do something for you to prove that they want you as a customer. Even if you are bluffing, you’ve got nothing to lose.
While it is never a good idea to endanger your home to pay off your credit cards, if you own your home, you can look into getting a home equity line of credit or even a cash out refinance to pay off your credit cards. This is an especially good idea if the rates on your cards are over 20 percent. Even if you get a sub-prime refinance, the rate you’ll be paying will be significantly less than what you would pay otherwise. The key here is to make sure you have the cash to pay your new mortgage, and making sure that you don’t fall into the same trap all over again. Keep one card for emergencies and for things like car rentals, otherwise, cut up the others, but don’t cancel the credit line completely unless they have an annual fee and the card company won’t do away with it.
There are some common sense ways you can get yourself out of credit card debt. While none of them are easy and a quick fix, they are all better alternatives to dropping the proverbial nuclear bomb of bankruptcy on your credit report. Here are some more alternatives you can consider if you think you qualify.
If you are still a student attending university or college, chances are, you have the option to apply for government student loans. The rates on these loans are just about the lowest you’ll find for any kind of loan anywhere. This can be a great help since most kids have the option of applying for more money then they will actually need. You can take this surplus student loan money and pay off your credit card bills. Depending on how much your room and board, plus tuition is, you might have anywhere between a few thousand and $10,000 in leftover money. This option may not be available to those of you that aren’t in school, but it can be a simple and inexpensive way to flush your credit card debt away forever.
Debt consolidation is another option, but it is extremely important that you deal with a reputable company. Many fly-by-night companies out there aren’t honest and they can end up doing more damage to your credit then you were doing on your own. What these companies will do, essentially, is call your creditors and tell them that you are considering bankruptcy and that you want to work out a deal with the card companies. The card companies will then have the option to either agree to cut you a discount on what you owe, or to ask that all the money be paid back and risk you going to bankruptcy court. Most times, a card company will be happy with half of what you owe them when faced with the option of getting nothing at all. The debt consolidator will, of course, have a fee, but when you consider what you would pay otherwise, it can be a welcome discount. At this point, you would stop making payments directly to the card companies, and you would instead make payments to the card consolidator and then they would distribute the money accordingly. But again, it is smart to go with a company that has been around for a period of time, not a fly by night organization that could take your money and leave you hanging.
A final common sense step you can take that can lead to big gains in your debt is to work on your credit score. When you improve your credit score, more credit companies are more likely to send you offers that have a better interest rate, better terms and are less likely to have extra fees like an annual fee. The quickest and best way you can boost your credit rating in a hurry is to zero in on one credit account and pay it down as quick as possible. You can boost your score 30 points in a six month period by doing this. It may not seem like much, but it can lead to a much brighter credit future for you!