According to CreditCards.com, at the end of 2008, the credit card debt for Americans reached more than $972 billion ... and counting. Credit card debt has become a burden for the average American as many cardholders find it difficult to make their minimum payments. High interest rates and late fees combined with job losses and wage cuts have left many families scrambling to pay their bills. The answer to reducing your debt may lie with what's in your wallet.
Understand Your Debt
The first step in eliminating your credit card debt is learning how much you owe.
This sounds simple but many people don't know their card balances. Add up all your credit card, and retailer balance amounts, including your interest rates, minimum payments and actual payments. Don't lie to yourself. Write down exactly what you pay, even if it is the minimum.
Get Started
It is common knowledge that credit card debt is toxic. There are many debt strategies out there, they are all pretty good, and you should test them. You need, however, to try a plan. You should stop using the cards with the highest interest rates first. Search for a card with rates under 10 percent and use only that card. Place your other cards away, but do not close out the accounts since that will hurt your credit score. Instead, gradually eliminate your accounts, starting with your newest cards, keeping only those which you've had a long history. Cut unnecessary expenses right away; bring your lunch, take the bus, whatever. Start paying with cash or a bank card and, if you can't afford that something now, wait and save.
Pick the Right Card
Attacking the card with the highest interest rate is the favored way by some debt analysts to pay down your debt. Mathematically, that advice seems sound, but, psychologically, that might not always work. High interest rate cards seem to have the higher balances, and seeing results can be frustrating if you are looking for a quick fix. Instead, choose the card with the lowest balance. Pay as much as your budget allows, and pay just above the minimum on the others. Once the first card is paid off, use that money and apply it all to the next debt, plus the minimum balance, and so on. You can also add payments at any time. This has been named the "snowflake approach." Take the extra $10 you saved on bagging your lunch and apply it to your debt. The small payments will begin to accumulate as your balance shrinks.
What to Avoid
Once you decided on a plan of action, make sure to avoid the temptation of rolling your credit card debt into a home equity, home refinance or other quick fix. Yes, your monthly payments will be reduced, but there are fees tied to such transactions that could add five to 10 years on your debt. You may have no other choice but to consolidate, just do the math first, and keep in mind what you can afford and what is best for your family's future.
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