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Crushing Credit Card Debt
Title: Crushing Credit Card Debt
Author: David Berky
How much do YOU owe on your credit cards?
The average American family is now over $7000 in debt just
on their credit cards. That debt generates an interest
charge of over $105 each month if your card charges the
average 18%. If you have missed a payment or made a late
payment (even by one day!), you may be paying up to 27%
interest or over $157 each month.
Most credit card companies require a modest payment towards
the card balance. Modest meaning from $10 to $20 a month.
To pay off a $7000 debt at $20 a month you will not pay off
this debt for 29 years.
And what about those interest charges? Paying off a $7000
credit card debt charging an interest rate of 18% and paying
$20 a month towards the debt, you will pay over $18,400,
more than TWICE the original debt, just in interest.
What if you have more than one card? What if your debt is
over $7000? What can you do? How can you get out of this
hole?
There are some techniques that can help you pay off your
debt and do not require expensive loans, invasive credit
checks, or expensive financial planners and accountants.
You can also save on interest charges by paying off your
debts in a certain order.
The most effective technique is sometimes called the
“snowball” method. The snowball method suggests that when
you pay off one debt you apply that payment amount to the
next debt. Thus the amount you pay on a debt grows like a
snowball rolling down a hill.
For example, you have three credit cards with debts of
$5000, $4000, and $3000 which are charging you 18%, 27%, and
12%, respectively, and you are paying $150, $125 and $100
each month. By paying these required monthly amounts you
will pay off your $3000 credit card first.
Now that the $3000 card is paid off you have an extra $100 a
month. Put that extra $100 toward paying off your next
credit card debt. Now you are paying $225 a month on the
$4000 card and the $150 on the $5000 card. With this
accelerated payment on the $4000 card you will pay off the
card earlier and save some money on interest charges.
Then apply the $225 payment to the $5000 card for a monthly
payment total of $375. Soon this card will be paid off and
you will have $375 extra each month to pay off other debts
or better yet, INVEST!
So, which debts should get paid off first?
Generally, you want to pay off the debts that are charging
you the highest interest rates first. In the above example
you could have added the $100 payment to the $5000 credit
card rather than the $4000 credit card. But the $4000
credit card is charging you 27% where the $5000 credit card
is charging 18%. By paying off the card charging the higher
interest rate first, you will save some money on interest
charges.
If this sounds too confusing, you can enlist your computer.
You can search the Internet for the keywords “debt reduction
calculator” or you can visit
/www.simplejoe.com/debteraser/index2.htm and review a
product named Simple Joe’s Debt Eraser.
Simple Joe’s Debt Eraser helps you create a
Debt Reduction Plan that is customized to your debts and
your situation. Just enter your debts and the amount you
can afford to pay each month. The software will create a
plan telling you how much to pay towards each debt each
month until they are all paid off.
You CAN pay off your debts. The trick is to stop charging
purchases to your credit cards and develop a debt reduction
plan. Your plan should include “snowballing” your payments
and prioritizing the debts by high interest rate.
************************************************************
© Simple Joe, Inc.
David Berky is president of Simple Joe,
Inc. which sells the Simple Joe’s Debt Eraser PC software.
Debt Eraser can help anyone get out of debt quickly and
inexpensively by creating a
Debt Reduction Plan.
Filed under: Uncategorized
Create Your Own Ultimate Debt Elimination Plan
Author: David Berky
The method is simple. 1) Set a monthly amount. 2) Pay all
minimum amounts. 3) Pay extra money toward the debt with
the highest interest rate.
This method will ensure that you pay the least amount of
interest and repay your debts as soon as possible.
The trick to paying the least amount of interest possible is
to pay extra money toward the debt with the highest interest
rate. Obviously you want that debt paid off as soon as you
can. Each month it costs you the most.
The trick to paying off your debts in the least amount of
time is to set a fixed total amount to pay each month. The
trap many people fall into is that they only pay the minimum
payments. These minimum payments are designed to keep you
paying that high interest rate for as long as possible.
By paying a fixed total amount each month, as one debt is
paid off, you will have more money to pay towards another
debt. This is often called the “snow-ball” effect.
But first things first.
First, determine you ability to pay. If your total payments
are much more than you can afford, you are in trouble. You
may need to contact a non-profit credit counseling agency.
You can find them in your local phone book or online.
But be careful of companies that want an up front fee.
Check with your local Better Business Bureau for
recommendations.
Next you need to make a commitment to stop getting further
into debt. Cut up your extra credit cards or put them where
you cannot easily get them. If you are living a lifestyle
that depends on credit, you will soon dig a hole you cannot
easily climb out of.
Stop spending more than you make each month and don’t count
on future bonuses, inheritances, refunds or other
non-dependable income to bail you out. If you make $2000 a
month you can only spend $2000 a month. Look for ways to
cut back and purchases you can postpone or do without.
Now, let’s look at each step of your ultimate debt reduction
plan more closely.
First, determine how much you can afford to pay each month
toward your debts. At the minimum it should be the total of
all your minimum payments for the current month.
You may need to examine your spending for the last several
months. Find things you can eliminate or do without for a
while. Postpone purchases, cancel subscriptions. Anything
to free up more money to pay off your debts.
You may even want to postpone investing for awhile. Are
your investments beating that 18% you are paying on your
credit card? If not, a better investment would be to repay
your debts.
Once you have your monthly debt repayment amount set, you
need to write down each monthly debt you are paying. Record
the creditor’s name, the current balance, and the interest
rate. Then take a separate sheet of paper and reorder the
debts so that the debt with the highest interest rate is at
the top.
Now as each monthly bill comes in pay the minimum payment.
Subtract the minimum payment amount from your set monthly
total. After all the bills are paid for the month, take any
extra money left over and make another payment on the debt
at the top of your list.
You can make an additional payment this month or save the
money to add to next month’s bill. But don’t spend it!
As each debt is repaid, cross it off your list, but keep
paying the total monthly amount you set at the beginning.
This will accelerate your debt repayment and save you
hundreds or even thousands in interest charges.
The two keys to your ultimate debt elimination plan are to
1) stop getting further into debt and 2) set your monthly
debt repayment amount. The rest is easy. You will be debt
free before you know it!
************************************************************
© Simple Joe, Inc.
David Berky is president of Simple Joe,
Inc. which sells the Simple Joe’s Debt Eraser PC software.
Debt Eraser can help anyone get out of debt quickly and
inexpensively by creating a
Debt Reduction Plan. This article may be freely
distributed as long as the copyright, author’s information
and an active link (where possible) are included.
Filed under: Debt, Financial Management, Uncategorized
Five Differences Between Debt Reduction and Credit Counseling
Five Differences Between Debt Reduction and Credit Counseling
by Ellise Walsh
More and more consumers today find themselves in the
uncomfortable situation of only being able to afford the
minimum payments on their credit cards. Or, even worse, not
being able to afford even the minimum payments. In today’s
world, it is often easy to get in over your head and find
yourself spending more than you make. It seems that
everything is going up but wages, and it is all too easy to
fall behind.
Many of these desperate consumers find themselves
contemplating a bankruptcy filing, but bankruptcy can carry
a legacy you will have to live with for years. A bankruptcy
filing will stay on your record for a minimum of seven
years, and you may find it difficult or impossible to obtain
necessary credit in the interim.
Fortunately, there are alternatives to filing bankruptcy,
even for consumers who owe thousands or even tens of
thousands of dollars to various banks, credit cards and
other creditors. Many people ask whether it is best to go
with a debt reduction program or enroll in a credit
counseling program. While there are some similarities
between these two types of programs, there are some
important differences to consider as well. Let us consider
the five most important differences between debt reduction
and credit counseling.
1. Did you know that most credit counseling programs will
require that you close all of your credit accounts? The few
exceptions to this requirement include accounts that are
required for business needs, accounts with very small
balances and accounts on which services, on the other hand,
do not require that all credit accounts be closed. This can
make it much easier to keep a credit card for emergency and
convenience purposes.
2. Credit counseling services typically take longer to
complete than debt reduction services. The average length
of time to liquidate debt through a credit counseling
service is 5 years. Unlike credit counseling, debt
reduction programs can often allow consumers to retire their
debts in less than a year.
3. Cost savings in the form of reduced payments is another
important advantage of debt reduction programs. While
credit counseling programs typically require that the entire
amount of the debt be repaid, debt reduction programs can be
negotiated to allow the consumer to repay only a portion of
what is owed. Most creditors are willing to work with
consumers enrolled in debt reduction programs and that
includes accepting a lower repayment amount. Settlement
amounts can range anywhere from 20% to 60% of the amount
owed, with the industry average being around 50%.
4. Your credit score is also affected in different ways by
credit counseling programs versus debt reduction programs.
Generally, credit-reporting agencies will re-age the
accounts of consumers enrolled in credit counseling services
after three payments have been made. With a debt reduction
settlement, the status of the account does not change.
If the account is current, it will remain current. If it is
past due, it will remain so. It is also good to remember
that with a debt reduction agreement the creditor will
report that the account has been “settled in full” or
similar wording, at the conclusion of the debt reduction
program.
5. The final difference between debt reduction programs and
credit counseling is the bargaining power enjoyed by the
consumer. Credit counseling programs rely on the submission
of a debt repayment proposal which the creditors are free to
accept or reject as they see fit. With a debt reduction
program, however, all creditors are contacted immediately to
inform them of the hardship situation and the desire to
resolve it through a negotiated debt reduction agreement.
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Filed under: Debt, Financial Management, Uncategorized