Slowly it rises. What began as a few purchases to cover emergencies or a luxury item or two, the credit card debt has taken a life of its own and grows to an amount that cannot be paid off in a few months, much less a year. Making payments in a timely manner results in new offers for credit cards in the mailbox, and the temptation of teaser interest rates is too good to pass up. Now, there are five or more cards in the wallet, all of which have high balances and which will take years to pay off, because you can only afford the minimum payments. You begin to look for credit card debt solutions, because the debt is causing stress and anxiety.
You Have Options
- Establish a budget which requires sacrifice and self-discipline until you get the debt paid off. If you are currently making your credit card payments on time, your goal should be to get them paid off more quickly and to avoid as much interest as possible. This can only be done by making more than the minimum payments. If you take the total amount owed on a card and divide it by the minimum payment you are making, you will get an accurate picture of how many months it will take to pay off the entire debt. By doubling the minimum payment, you can cut this at least in half. For example, a $3300 card balance, at $100 a month, will take 33 months to pay off. Doubling the payment to $200 will mean a zero balance in only 16 months or less. Attack one card at a time, doubling the payment until it is paid. Then, take the amount you were paying on the first card and add it to the minimum payment you were making on the second card. This procedure provides a credit card debt solution that is responsible and organized. It will require sacrifice, and that means no new purchases on credit cards, except dire emergencies, until the debt is gone.Taking over the bill payments until the consumer has developed the knowledge and skills of personal finance to manage this activity himself.
- If your credit card debt has gotten beyond your means to make even minimum payments, you must consider other options. Late and missed payments will affect your credit for years and result in higher interest rates on all major purchases, such as a car or home. At this point, you should consider a debt consolidation loan and perhaps negotiation with your creditors for an adjustment in total payoff requirement. Some individuals can negotiate with credit card companies themselves, however, there are professionals who can accomplish this as well. Do some research and locate a professional or company that has a solid reputation. Start with your local Better Business Bureau and proceed from there. A reputable individual or company will be willing to provide references and will explain all of the fees in detail. Yes, there are fees for this service, and you will be paying these fees as a part of the consolidation loan. Debt consolidation professionals should be willing to offer the following: negotiation with creditors for a lower payoff amount, securing a debt consolidation loan for you, credit and budget counseling so that the same patterns of poor financial management and spending behaviors are arrested, and follow-up counseling and advice.Negotiation with creditors to obtain lower payoff amounts and assistance with securing a debt consolidation loan if warranted.
- Bankruptcy is a final option when things are entirely out of control. There are two types of bankruptcy, Chapter 7 and Chapter 13. Chapter 13 bankruptcy involves setting up a payment plan with the court, to pay off indebtedness over a 3-5 year period. The monthly payment is made to a third party and then distributed to creditors as ordered by the Bankruptcy Court. Chapter 7 bankruptcy wipes out all debt and allows a “fresh start” to the debtor. New federal law and variances in state law regarding bankruptcy may make Chapter 7 bankruptcy more difficult to obtain, so it will be important to check with an attorney before making a decision on the bankruptcy option. In either case, you will need the services of an attorney to proceed with bankruptcy, and there are fees involved.There are a number of federal, state and local agencies which provide credit counseling services for free. A call to the city or county government offices will put you in touch with government-sponsored counseling. Many religious organizations offer free credit counseling as well, and, in most cases, an individual does not have to be a member of that specific faith. Catholic Family Services would be a place to start.
- Using your home equity is another credit card debt solution. If possible, this solution should be investigated before the debt has resulted in late or missed payments. Re-financing one’s home or obtaining a home equity line of credit is difficult if one’s credit report reflects late or missed payments on credit card debt. The other key piece of this option is the commitment to cut up credit cards, vowing not to use credit again unless there is a dire emergency.
The Ultimate Solution