How to Get out of Credit Card Debt Using Self-Help Techniques- Part 2
Written by CardRatings.com
Posted On: September 22, 2005
Editor's Note: This article is the second in a two-part series containing tips on reducing credit card debt. Please click here to read the first article in this series.
Get Another Job
That’s right! It might temporarily take a part-time job delivering pizzas to get you and your family back on the right path. Or if you are living off one income so mom (or dad) can stay home and raise the kids, consider opening a home daycare or other home based business. That way you still get to be with your own children and earn some extra money at the same time.
Sell Some Stuff
Chances are you have lots of sellable stuff you aren’t using packed in the back of your closet or in boxes in your garage. And if you aren’t the sentimental type go ahead and sell grandma’s china. Even if you are sentimental, consider keeping only your most treasured heirlooms. Try not to overlook something that doesn’t appear valuable. The Smiths inherited a painting that hung in her grandmother’s garage for years and it ended up being auctioned off for $40,000 at Christie’s in Boston!
Tap Into Your Assets
If you do have some savings, consider pulling some of it out to pay off your debt. You typically don't earn near enough interest in a savings account (typically around 1-2%) to outweigh the interest you’re paying on credit card debt (typically around 15%). You can consider tapping into a 401K plan too, but be cautious with this option. You will need retirement savings some day and according to Detweiler, these types of accounts are usually protected during bankruptcy proceedings. It may be a good idea to speak with a lawyer about bankruptcy options before using retirement money.
Once you’ve found some extra money to start paying more than the minimum you’re ready to move forward. Determine a fixed monthly payment you can put towards the debt. Pay only the minimum on all your credit cards except the one with the highest interest rate toward which you will pay as much as your budget allows. Detweiler adds,
"For most people paying the highest interest rate credit card is best. Once it’s paid off, then move on to the next highest interest rate keeping your same fixed monthly payment."
Another option that worked well for the Smiths is paying the lowest balance credit card first. Smith said that quickly getting rid of the first credit card debt gave her the confidence and motivation to move onto the next.
Contact Credit Card Issuers
It’s always a good idea to contact your credit card issuer to try and negotiate a lower interest rate. If they won’t give you a lower rate, try applying for a new low-rate credit card. The "Card Reports" section of CardRatings.com is a great place to shop and compare credit card offers. If you do get a new low-rate card then immediately transfer as much of the balance from your higher rate card(s) as possible. If possible, try not to exceed 50% of the credit limit of any of your cards as doing so could lower your credit score. By staying under the 50% mark you may find new low-rate credit card offers appear in your mail box, which could give you a valuable tool in negotiating.
If you are behind in your payments, some credit card issuers may even be willing to set you up on a hardship plan where your required payment is reduced. Credit counseling agencies may even be a better alternative. Detweiler notes,
"If you go through a credit counseling agency your accounts after 3-6 months may be re-aged, which means your accounts will be in good standing once again."
A hardship program done directly with the credit card issuer won’t have this advantage, so as long as you are paying less than the contractually agreed upon amount your account will have a negative standing.
Getting out of credit card debt is never an easy process, but it can be done. The extra effort definitely pays off, not only financially but also when it comes to your peace of mind. We sincerely hope that these self-help techniques will help you achieve the new American dream— freedom from debt for all!
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