Eliminate Credit Card Debt

Why Eliminate Credit Card Debt

Credit card debt is a vicious cycle that has gotten the best of even the most avid financial planners. It has become all too common in our society to charge now and worry about paying later. The problem with this is that charging doesn't come without a price. Every dollar and purchase placed on a credit card is subject to high interest charges. If the debt isn't paid promptly, the interest builds and builds, making it more difficult to pay off the balance.

For this reason alone, you should want to eliminate credit card debt, but there are also other considerations. For example, the more credit card debt you carry, the harder it will be to get approved for:

• Home loans
• Auto loans
• Business loans
• Other types of credit

Lenders will look at the amount of debt that you carry and count it against you if it is too high. That may seem unfair, but their line of thinking is this: if you have a lot of high credit card bills coming in, you may not be able to afford to keep up with them in addition to loan payments. The ultimate answer is to eliminate credit card debt completely. At minimum, you should always try to keep your credit card debt below 30 percent of your credit card limits.

How to Eliminate Credit Card Debt

If you want to eliminate credit card debt, you have two basic options: pay down your balances little by little or get a debt consolidation loan to eliminate your debt in one fail swoop.

Paying Down Balances

Paying down balances is not an overnight process. It will take time and dedication, but it is possible. All you have to do is follow the steps outlined below:

1. Stop charging. Do not use your credit cards anymore unless it can not be avoided.
2. Make a list of your credit cards and the minimum payments due on each. Put the high interest cards at the top and the lower interest cards at the bottom.
3. Add up all of the required payments and then decide how much extra you can put towards these bills each month. If you don't think you can afford any extra with your current income, you need to make cuts in your budget or find a way to temporarily earn extra money (garage sales, a second job, etc.).
4. Every month, pay the minimum balance due on each card, except for the card at the top of your list (the one with the high interest). For this card, pay the minimum balance required plus whatever extra money you can afford.
5. Continue applying step four until the first credit card is paid off. Then, move onto the next credit card on the list. Repeat until you have managed to completely eliminate your credit card debt.

Debt Consolidation

Consolidating all of your high interest credit card debt into one easy loan payment is a tempting option. While there is nothing wrong with choosing to eliminate credit card debt in this way, you will want to be careful. Here are a few specific things you will want to keep in mind:

• Debt consolidation only makes sense if you can save money long term.
• Trading in unsecured debt for secured debt is not always the best idea. You could risk losing some of your biggest assets.
• Take time to find a reputable debt consolidation program. Fraud is common in this industry.

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