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The answers to your Credit Card Debt questions are answered here. Browse around to find new tips and advice from our helpful list of F.A.Q.s from people like yourself.
Q: How can I get myself out of credit card debt?
A: Getting out of credit-card debt can be a lot easier than it seems -- if you're able to use discipline. First, you need to resolve to curb your credit-card spending. Commit to only using your credit cards to buy things you absolutely need, and that you'll be able to pay off, in full, at the end of the month. If you're unable to do this, either because you need more than your current income and expenses allow or because you simply lack the will power, then you will not be successful in getting out of credit-card debt on your own -- you'll need a little help.
But if you are able to curb your credit-card spending, the next step is to ensure you can pay at least your monthly minimums on each of your credit cards, each month. Cut back where you need to. Instead of buying a $4 latte every day, brew your own coffee at home and drink it before you leave each day. Otherwise, the price of that latte can end up being a lot more than $4!
If you're able to curb your spending and pay at least your minimums, the next step is to save a little extra cash each month and apply it toward your debts. Even if it's only $20 a month, it will go a long way when allocated in the most effective manner possible. But most people can find a way to sock away an extra $5 every workday, which works out to more than $100 a month.
But what do you do with the extra $100? Simply apply it to the credit card with the highest interest rate and you'll see that balance drop like a stone! When you only pay the minimums, the bulk of your payments are going towards interest, which is why your balances never seem to go down -- paying an extra $100 takes a flat $100 extra off your balance each month!
It's important to note here that you must keep paying the same payment on each of your cards, each month. As your minimum payments chip away at your balances, the minimum payment required will drop, but this is a trap -- don't fall for it! Keep on paying the payment you've gotten used to and more of your payment will go towards paying down the balance.
When you finally get your first credit card paid off, take the total monthly payment (your original minimum + $100) and apply it to the card with the next highest interest rate. Repeat this process and in little time, you'll be credit-card debt free.
Of course, this plan can't work for everyone. Many people are so deeply in debt that they can't even pay the minimum payments on their cards, let alone save up an extra $100 each month. For these folks, services such as credit counseling, debt management, and debt settlement should be looked into.
Q: How can I save money on my credit card debt?
A: The first way is to just ask. Oftentimes, all it takes is a call to your card issuer's customer service line. If you've been a fairly good customer, tell them you're thinking of transferring your debt to another company's card with a lower interest rate. If you've had some trouble making your payments on time, tell them you're worried about your ability to pay in the future. Either way, they'll often volunteer to drop your annual percentage rate of interest by a few points. Credit card companies aren't dumb: They know that they make no money when you close your account, and they'll usually work with you in order to avoid that coming to pass.
If this doesn't work, you can consider applying for another card with a low introductory APR. Then you can transfer your existing debt to this card and pay as little as 0% interest for a year.
Finally, it's usually a good idea to use your savings to pay off credit-card debts. After all, if your bank account is yielding only 2-3% and your credit card is charging you 12-24%, it only makes sense to withdraw your cash from the bank and use it to pay down your cards. Yes, it is important to have a cash reserve, but once you pay down your credit cards, you'll be able to use your available balance in the case of an emergency. In this way, it's not a whole lot different from cash. However, if your cash is yielding 2% and your credit card is charging you 12%, you're actually losing 10% on every dollar in your bank account!
Q: How does credit-card debt affect my credit report?
A: One of the major factors used in determining your credit score is your outstanding debt vs. your available credit. For example, if you had $6,000 in credit-card debt, but the total available credit on your credit cards was $12,000, then your ratio would be 50%. However, if you had $6,000 in credit-card debt on cards with only $7,000 in total credit, then your ratio would be 85%, and that's bad.
With this in mind, it's important to recognize that it's normally a bad idea to close one of your credit-card accounts. It's far better to leave the account open, but pay down the balance to $0. That way, your total debt used vs. available credit will be lower, thus making your credit score higher.
Q: What can I do to better manage my credit card debt?
A: If you're able, you should always pay the minimum payment as soon as you receive your bill. If you can pay more later, do so, but missing or even being late with just one payment can seriously tarnish your credit rating and subject you to higher interest rates.
If you find yourself in rather serious credit-card debt, the first thing you need to do is stop spending on non-essential items. Even essentials, if you use a credit card to buy them, should only be purchased if you're able to pay off the charges, in full, the next month.
When your minimum payments start to go down because you've chipped away at your balances, don't fall for the trap of paying the new, lower minimum payment -- keep on paying the old minimum. This way, your balance will drop even faster.
But if you're simply not able to manage your credit card debt on your own, there are trained professionals who can help you. Look into credit counseling, debt management, and debt settlement services before even considering bankruptcy.
Q: Will credit-card consolidation lower my interest rates?
A: In most cases, yes. In fact, this is one of the primary reasons for consolidating credit card debts. If a credit-card consolidation plan doesn't lower your interest rates, then you should probably look for another plan.
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