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Directions to Reduce Credit Card Debt

Anyone that does not pay the full balance, owed on any type of credit card, automatically gets charged an interest rate. This interest rate, is based upon the fact the money to be borrowed is considered unsecured debt, which means that there no security to back up the money that is being loaned. As a result, the highest amount of interest rate is charged, by the creditor, for unsecured debt, being borrowed.

Credit Card companies, allow the borrower to pay the minimum amount on a credit card.  But this practice, actually becomes excessively more expensive to the borrower, because the minimum balance that is being paid each month, does not cover the actual total amount of interest rate charged on the borrowed money. The difference between the minimum paid, minus the actual amount of interest per month, is added to the balance, and the interest rate charged, on the balance increases the loan amount total, on the credit card.  For example: If a credit card holder has a balance on a credit card for $7,000, and only makes the minimum payment of $20 a month, based upon 18% annual charge, the interest rate amount would total over $18,400. Not including the original principal and any late fee's that would be added to the cost of the credit card. This certainly works in favor of any credit card company.

There are ways to reduce the interest rate on a credit card(s), and more quickly pay off the balance.

First, by contacting a credit card consolidator (many are listed in the yellow pages, and on the Internet). The Consolidator can put together all your credit card loans, into one account, where by you make one payment each month, and in the process, get a more favorable interest rate on the total amount that you owe, and extend the time of the new loan.

Second, a Debt Consolidation maybe another alternative, where by as in the first case mention, all your credit card(s), are consolidated into one loan, but the interest rate would be considerably lower, because you might be able to take out a home equity loan, which would be the security that backs up the new loan, and give you lower interest rate payments. The interest rate paid on a home equity loan, is totally deductible on your income taxes. However, this certainly has it's risk, since if you default on this new loan, for whatever reason, you would loose your home, and be evicted.

Third, if you have or open a securities account at any brokerage firm, you can borrow money from your account on margin. Which means, that if you have securities including stocks, bonds, treasuries and or other assets invested, your brokerage account, can provide you with margin or extended credit, usually up to half the amount of the total value of your account. The credit, you can borrow from your account, by writing a check(s) from you account. Each month, that you borrow money, an interest rate would be charged on the money borrowed, and debited to your account. The interest is much more favorable (currently around 9 Percent annually), because the money borrowed, is secured by the net amount of securities, you have in your account. Also, if the value of your securities increases, your margin amount to borrow does increase.  A favorable advantage would be to pay off the higher interest rate and principal, on any unsecured credit card(s), from this margin account. This would certainly lower your monthly interest rate amount, and give you more flexible terms, towards paying the loan. And of course, you can always sell any securities you have in your account, to drawn down the amount of the margin you borrowed. Plus another advantage, the margin account interest you pay, is totally deductible against any investment income on you taxes, but unsecured credit card interest rate paid, is not deductible.

Keep in mind that Federal Reserve has been over the past year, raising short term interest rates, which will cause interest rates on unsecured and secured loans to increase.