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Credit Card Debt: Easy to Get In, Hard to Get Out
If millions of Americans have learned how easy it is to get into credit card debt, they have also discovered how hard it can be to get rid of that debt. Credit card debt has become so widespread that countless financial advisors and their firms have turned their strategies for consolidating and paying off credit card debt into profitable businesses.
But that doesn’t mean you can’t start trying to get out of debt on your own. Before consulting an advisor or debt consolidation manager, you might take these steps first.
The most obvious one is to stop using your credit cards so you won’t add to the debt. Put them away so you won’t be tempted, though you should keep one card handy, preferably the one with the lowest interest rate, but only for emergency use.
The next step is basic: Record your expenses, all of them-everything from your coffee and newspaper to the mortgage and car payments-for a month. Then compare what you spent to your income.
Then list all your debts, not just the mortgage and car payments, but the amount owed on every credit and charge card, along with the interest rate, the dates payments are due, the late fee penalty and the grace period before new purchases start piling on interest.
Study the lists. Do you spend more than you earn? Figure out what you can change.
Pay careful attention to the interest you pay on your credit cards. If interest is piling on and you only make minimum payments, call your lenders and ask for a lower rate. It may not work, but credit card companies want your business. They also want you to be able to keep paying so they may be willing to negotiate, especially if it means you can keep payments coming.
Shop around for a better credit card rate. This is easier than it sounds. A number of web sites do the work for you, comparing interest rates, fees, methods of payment and other data for dozens of credit card offerings. But check before signing up to be sure the information is current and that you qualify for the advertised rates and fees.
Transferring the balances from your higher rate cards to one with a lower rate can cut your interest payments, and plenty of credit card companies offer this service. But be careful before accepting an invitation to transfer to a card with zero or low percent interest rates, no matter how tempting it seems. The number of low interest offers in the mail and in advertisements should warn you that credit card debt consolidation has become big business. You need to read the fine print very carefully and be sure you understand all the potential pitfalls.
Most low rates are good for a limited time and apply only to the amount you transfer, not to anything additional you may purchase. That amount may be subject to a much higher rate. Unless you can pay off what you transfer within that time, your interest rate on the unpaid balance may soar. If that’s the case, you might be better off with a fixed, but lower, rate. And since anything you pay goes to that transferred amount, you probably shouldn’t use the card for purchases until that debt is repaid.
Too, that low rate may vanish if you are late with a payment. You also need to be aware of other possible fees. Some credit card companies charge a transfer fee. This may be a flat rate, typically $25 to $50, or it may be a percentage of the amount that you transfer. If the initial transfer comes without a fee, subsequent transfers may be considered cash advances and subject to that fee, usually higher than the interest rate.
If you can’t handle your credit card debt by negotiating lower interest rates or transferring to a lower interest rate credit card, which you can pay off, consult a financial advisor or a debt consolidation expert. Again, beware. Check with the local Better Business Bureau or some reliable source to be sure you are dealing with someone, or group, who is reputable and will work to help you solve your credit card debt problems, not add to your financial woes.
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