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Paying Down Credit Card Debt

America has evolved into a cashless society due to the popularity and availability of consumer credit. The extension of credit is the foundation of the American economy and allows millions to have a higher standard of living. However, managed improperly, consumer credit can lead to financial ruin. If you are swamped with credit card debt and are looking for a way out, there are proven methods that will assist you with your efforts.

Highest Interest First Plan

Experts agree, the best way to alleviate credit card debt is to tackle the account that has the highest annual percentage rate (APR) first. High interest rates play a bigger role in consumer debt than do large balances. Organize your bills from highest to lowest APR. Start with the highest and pay as much as you can above and beyond the monthly minimum requirement. Keep in mind that you are still making the minimum monthly payments on your other accounts. The extra money you dedicate to the highest APR account should be a by-product of budgeting and should not prevent you from paying other bills. Once you have paid off the first account, move onto the one with the next-highest APR. Regardless of what the minimum is on the second account, continue to allot the same amount of money as you did on the first. Continue on down the line until all accounts are paid off.

Lowest Balance First Plan

While it is more effective to attack the highest interest accounts first, some people find it too overwhelming and discouraging. Accounts with smaller balances can often be eliminated with greater ease. This provides a sense of accomplishment and motivation to then pay off other accounts. If you feel this is the more realistic and encouraging option; organize your bills from the lowest balance to the highest. Once you have paid off the lowest, move to the next lowest, and so forth; always applying the payment amount from the previous account to the current one.

After you have knocked out a few of the smaller balances, switch over to the highest interest plan. It makes more sense to get out from under those high interest rates as quickly as possible so you can focus more of your payments on principal rather than finance charges.

Be Realistic

Some people are overly optimistic and allot too much to their payment plans, which sets them up for failure. Be realistic in how much you can afford to pay each month above the minimum requirements. Most experts recommend that no more than 10% to 15% of income be allotted to debt payments.

A good way to come up with the extra cash is to cut back on unnecessary spending. All of those little things really add up. Start by keeping a daily diary of everything you spend. At the end of the month add up the "un-necessaries", which can really add up, and evaluate if they are worth going without. Many people find that by simply becoming more aware of what they spend they naturally cut back. Aim to save at least $50 from your cut-backs. Imagine how much quicker you could pay off your debts if you could throw an extra $50 a month at them. Here's an example: If you had a balance of $3000 on one card, paying a $60 minimum each month would take 8 years to pay off and cost $2,780 in interest. If you could apply an extra $50 per month, the balance could be paid off in 3 years, reducing the interest to $980.

There are many debt calculators on the web that can help you figure out how long it will take to knock out debt by increasing your payments. A good one is Bankrate.com's credit card minimum payment calculator:


Stay Committed

As accounts get paid off and the minimums trim down, it is tempting to ease up on monthly payments. Stay committed to your payment plan. The added discipline is well worth freeing yourself from credit card debt.

Other Measures to Reduce Credit Card Debt

  • Stop Creating Debt - Do not open any new accounts. Use current cards only when absolutely necessary to keep them active.
  • Use Only Two Cards - Decide which two cards are most beneficial; pertaining to interest rate and credit history. Put the other cards away, only using them a few times a year to maintain active status.
  • Balance Transfers - If you are trapped by high interest rates, find a card that offers 0% and transfer your balances. Just be sure the APR it goes up to and the associated fees don't cost more than what you are currently paying.
  • Consolidate - Consolidate as much of your debt possible into lower rate cards or consolidation loans.
  • Contact Creditors - Try to negotiate a lower APR. Even a 1% reduction will help in the long-run.
  • Use Cash - It is habitual to whip out the plastic when making a purchase with little regard to the rising balance. Using cash keeps you more mindful of how much you are spending and prevents you from making a purchase when your wallet is empty.

Settle Your Debts for Less than Full Balance

What is Debt Settlement? Debt Settlement is a professional process of negotiating with your unsecured creditors to accept an amount as settlement for less than full balance. We begin negotiating with your creditor and we exchange with them a series of offers and counter offers. We make an offer, they make a counter offer, and so on. This process can be short, or lengthy.

Once the terms and amount are agreed upon in writing, we pay the creditor with a conditionally-endorsed, certified check from your settlement escrow funds. This check is attached to a binding settlement agreement which binds the creditor to three conditions:

  • Creditor accepts the amount as a settlement and forgives the unpaid portion.
  • Creditor releases you from any further obligation associated with any agreement signed by you specifically related to the settled account.
  • Creditor agrees to report the account as a Settled Account with a zero balance to all credit reporting agencies.

The settlement is completed after the creditor provides written agreement and cashes the check. However, it is important to follow up approximately 60-90 days later to ensure the creditor has reported the account as settled with a zero balance. Some creditors rely on automation to halt the mailing of collection letters, and to report accounts to credit reporting agencies, and their automation is not always reliable.