Tuesday, February 25

10 steps to reducing your credit card debt

10 steps to reducing your credit card debt
Business Week | By Bill Hardekopf, MainStreet

Do you owe more money on your credit cards than you have in your emergency savings? You're not alone -- and the situation isn't hopeless.

Credit card debt is a huge weight on Americans’ finances. According to a recent survey, close to half have more credit card debt than emergency savings.

Issuers have added to the problem. Mailboxes have been filled with credit card offers as issuers aggressively market lucrative rewards and balance transfer cards, especially to consumers with good or excellent credit scores.

Consumers need to stop running up large account balances and getting themselves in a financial pinch, like they were in 2008. Here are 10 tips for reducing credit card debt starting now:

1. Know how much you owe for all credit cards debts. Write down a debt summary that includes the creditor, monthly payment, interest, balance due, credit limit and due date for each loan.

2. Contact your creditors to see if you can negotiate a lower interest rate. The less money you pay in interest, the more money you can use to pay off your credit card balance as well as other bills.

3. Pay off the card with the highest APR first. Continue to pay the minimum on your other cards until you pay off the card with the highest rate. Then focus your effort on the card with the next highest rate. After you pay off the card, keep it open, especially your oldest cards. Losing this available credit can lower your debt utilization ratio, which could, in turn, lower your credit score.

4. Pay more than your minimum payment. Your minimum payment is usually only 2 percent to 5 percent of your balance. At this rate, it will take you many years to pay off your debt. Start with the card with the highest interest rate and try to at least double your minimum payment

5. Balance transfer offers are currently very attractive, so consider transferring your balance to a card with a lower rate. If your rate is above 12 percent, look for a card that offers 0 percent for at least 12 months. To take full advantage of this 0 percent interest, pay as much as you can above the minimum payment each month.

6. If you have a credit card balance, stop using that card for anything other than emergencies. Use cash instead. If you carry a balance, you are paying interest for every purchase, including clothing, entertainment or dinner. Factor that in to each purchase. Paying with cash will not only save money on interest, but will also reduce the amount you spend.

7. Pay your bills on time, every time. Not only do you have to pay a late fee, but late payments can also appear on credit reports. Negative information such as this can result in lower credit scores and higher interest payments.

8. Give yourself a realistic timetable to pay off this debt. It took time to accumulate this credit card debt, and it will probably take even more time to pay it off.

9. If you are surprised by your current rates, check your credit report. It may contain an error that lowered your credit score, causing creditors to increase your rates. If you find an error on your report, contact the credit bureau to report it. They must respond to your claim in thirty days or remove the information that is incorrect or unverifiable. You can dispute by mail, telephone or online. If the corrected error results in a higher credit score, alert your creditors to this and ask for a lower interest rate.

10. If you are in danger of missing a payment, or defaulting on your credit card loan, contact your credit card issuer as soon as possible. Your issuer may work out a payment plan with a lower rate or monthly payment if it will help keep your account out of default.

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