June 30, 2009Getting a credit card can be quite a liberating experience – until you find yourself deep in credit card debt. With the current economy the way it is, if you are carrying a large balance every month on you credit cards, you are possibly in a very risky financial position.
Aside from the bad economy and the dry up in employment, you will also have to contend with increasing interest rates and fees. Banks are currently very eager to earn as much as they can out of you. You see, not only are credit institutions in a bind due to the economic crisis, they are also in a hurry to earn as much as they can before the credit card bill takes action against them, which should be around February next year. Right now, it is a very bad time to be a credit card holder with a big debt.
So how can you get yourself out of credit card debt? There are no hard and fast rules on how you can do this. It depends mostly on what your financial situation is like and what can work for one person may not work for another. However, one thing that every credit card holder who wants to zero out their balance should do is to review their financial situation. Basically, you want to figure out how much you owe and how much you earn. Figure out where your finances are going to every month, how optimal is your credit card payment set up and how much “free” every month.
To start with, list down all your credit cards. For each of your credit lines, list your balance, their minimum payments and interest rates. After doing that, figure out your income and see how much is the exact amount that you can safely allocate to debt payments every month. Although it is tempting to allocate as much as possible to debt payments, make sure to reserve some cash for day to day expenses. Also, give yourself some financial leeway for unexpected events.
Once you’ve got that list and you’ve figured out your available cash for debt payment, pay off the cards with the smallest balance first, regardless of its interest rate. Now list your cards according to their rate of interest. Schedule your payments so that you make only the minimum payments for all your credit cards except the one with the highest interest rate. The remaining debt payment allocation that you have should go to paying off your credit card with the highest interest rate. Once that’s done, move on to the card with the next highest interest rate until you have all your debts paid off.
American consumers have probably seen these offers for credit card payment protection plans smartly inserted along with their monthly bill statements. Most plans cost around fifty cents to the dollar for every balance of one hundred dollars to buy. According to the plane, when you are unable to pay off your bill, your payment protection plan will be activated. When it does, the plan will pay your bill’s minimum amount due or a fixed amount, depending on the plan. The plan will also help you avoid ruining your credit score because, when the plan becomes active, the credit company will not report the situation to the credit bureaus. Credit card companies are, ostensibly offering these plans to help you recover whenever you miss out on your monthly payments.