Eliminate Debt by Creating an Action Plan

Most people experience debt for seemingly unavoidable reasons – maybe you had to make an unexpected purchase, lost a job, or had a family illness. Regardless of the cause, eliminating debt should be a top financial priority. “You need an action plan to help you work at reducing and eventually eliminate debt,” says Gail Cunningham, a spokesperson for the National Foundation for Credit Counseling, a nonprofit organization. Here are several ways to create one for yourself.

1. Target one card at a time. If you have many credit cards carrying a balance, it may seem like a long, slow process to eliminate debt. Instead, target one card at a time, perhaps your smallest card. When this card is paid off, you’ll feel accomplished and want to keep at it. Ask yourself: What short-term financial goal will make me feel as though I’m making meaningful progress on debt reduction? If your answer is “Having one card totally paid off,” then throw as much money as you can toward the card with the lowest balance first, says Curtis Arnold, the founder of CardRatings.com, a credit-card–comparison site. (Yes, do this even if you need to pay only the minimum on your other cards in the meantime.)2. Ask your creditors for lower interest rates. Have you ever thought about trying to get a reduced interest rate? Often a simple phone call to the issuer is all it takes to get a reduced rate—provided that you have good credit (a score of 730 or higher) and you are a long-term customer who makes payments on time. You could get a percentage point or two shaved off, which can add up to hundreds of dollars saved annually. One tip to try: “If you’ve been offered a lower rate by a competitor, tell the customer-service rep,” says Bill Hardekopf, the CEO of LowCards.com, a credit-card–comparison site. “There’s a chance they’ll match the offer.”3. Transfer your balance (cautiously). It’s tempting to move a balance from a card with a high interest rate to a card with a substantially lower one (find one at Bankrate.com). And potentially that’s a smart move; you can save hundreds of dollars a year. Only transfer a balance only if you’re committed to paying off the debt within an introductory low-interest-rate window (which typically lasts 12 to 18 months after the first billing cycle closes) and to making monthly payments on time, says Arnold. Otherwise your rate could skyrocket, possibly ending up higher than the one you just got rid of. (Important: You should also avoid making any purchases with the new card, as sometimes the low interest rate won’t apply to them.) In addition, know that you may be charged a balance-transfer fee, which is usually about 3 to 4 percent of the total amount transferred. (To calculate how much this will cost you, go to smartbalancetransfers.com.)4. Use a peer-to-peer lender. In a perfect world, you would pay off your credit card in full and be free and clear. But if you can’t do that, consider borrowing money to pay off your card from a peer-to- peer lender, such as LendingClub.com or Prosper.com. These secure sites offer loans with fixed interest rates that can be 20 to 30 percent lower than most credit cards, meaning you could save hundreds of dollars in interest on your debt, says Lynnette Khalfani-Cox, a cofounder of AskTheMoneyCoach.com, a personal-finance site. If you have a job and a good credit score, you may qualify to make an online loan request for up to about $25,000.

   5. If you’re really strapped, make two minimum payments each month. Card issuers typically charge interest on a daily basis, “so the sooner you make a payment, the faster your average daily balance is reduced, which translates into fewer dollars in interest that you ultimately pay,” says Gerri Detweiler, the director of consumer education for Credit.com, a personal-finance website. If you’re on a tight budget, go ahead and pay the minimum due each month, then try to make the same payment again two weeks later. Keep making a payment of the initial minimum-due amount twice a month until your debt is paid off.

For more help to eliminate debt, contact the Credit Care Company at 314-485-9940. We believe that everyone deserves a second chance when it comes to their credit. We strive to help our clients achieve financial freedom!