If your credit card bills are out of control, here is some help in getting a handle on them. I can give you a six-word formula for success: Think things through - then follow through. - Edward Vermon (Eddie) Rickenbacker
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Credit Card Debt Management

The great advantage to having a credit card is that you have the availability to buy goods or services that you can pay for later. The great disadvantage of having credit cards is that it is too easy to buy things you really can’t pay for. That’s when we get in trouble.

Since most credit card companies do not require us to pay off our balances every month, most of us have an ongoing balance. This is bad! The longer you wait to pay off that balance, the more money you will owe to the credit card company since they charge an enormous amount of interest on the balance that you don't pay off at the end of each month.

One way to understand just how much interest we are being charged is to compare what you would earn in interest from a bank or owe in interest to a bank loan:

Example Interest Rate
Balance
Savings Account 4% $1,000.00 Earn: $40.00
Bank Loan 10% $1,000.00 Owe: $100.00
Credit Card 20% $1,000.00 Owe: $200.00

Do You Have a Lot of Credit Cards?

Why? You should limit the number you have. Having too many credit cards may work against you when you apply for a loan. It represents money you owe or the money you can borrow. A maximum of three is good, two is better. But do not close accounts that are paid off if they are in good standing. Otherwise, you will wipe out the good credit history that you have. We're not saying you should use that card. We're saying stick it away somewhere so you can keep the history.

Do You Pay Your Bills with Your Credit Cards?

You should never rely on your credit cards to pay your bills. This is “robbing Peter to pay Paul” and you will only end up deeper in debt to Peter. Take the cards out of your wallet and put them in a safe place. Otherwise, you will use them.

Pay More than the Minimum

Make extra payments on you credit card debt, not just the minimum payments. You may already be aware of this method to reduce debt, but it is a great tactic and just can't be stressed enough. If you pay just an extra $10 a month you may be able to cut the length of repayment way down.

Here’s an example. If you only pay the required minimum payment on a $2,500 balance at 21% interest and make the minimum monthly payment of 2%, it will take 33 years to pay off the balance and you will pay $10,496 in interest payments:


Balance
Minimum Payment Years to Pay Total Interest
$2,500 $25.00 33 $10,496

Now, with that same balance, but paying and extra $10 per month or making a $50.00 payment a month look at the difference:


Balance
Monthly Payment Years To Pay Total Interest Fewer Years
to Pay
Interest Savings
$2,500 $35.00 22 $7,695 11 $2,801.00
$2,500 $50.00 10 $3,493 23 $7,003.00

That amazing, isn’t it! So, do all you can to pay a little more than the minimum. No matter how small, every month, take advantage of the compounding effect this has on reducing your debt.

Negotiate Better Terms

Since you're already a customer, chances are that your lender will try hard to keep you as a customer. Because of that, they will often agree to reduce your interest rate. How can you take advantage of this? All you need to do is ask. Many customer service people are authorized to reduce rates right there on the phone. Okay, sometimes it’s not quite that easy, but it sure isn’t hard. When asking for a better rate be sure to tell your creditor exactly how long you have been a loyal customer. You may have to speak to a supervisor. You may also need to threaten to close your account and transfer your balance to another credit card company. But they will do it. Just ask.

Creditors agree to reduce interest rates because it saves them the expense of collection efforts and increases their chances of recouping the balance. Read more about how to go lower your credit card interest rate.

Balance Transfer Credit Cards

Credit Card Debt Consolidation

Be careful with this. Remember that these are introductory or “teaser” rates and they only last a short period of time – usually six months. Then the interest rate rises, usually back up to the same rate you had before, or maybe higher. If you do transfer your credit card balance, read the fine print and ask questions first:

  • How long does the introductory rate last?
  • After the introductory rate expires, what is the card's new annual percentage rate?
  • Does the teaser rate apply to transferred balances or only to new purchases or both?
  • Is there an annual fee? If so, how much?
  • How much are the late and over-the-limit fees?
  • Is there a balance-transfer fee? Some credit card companies charge a transaction fee as high as 4%. Therefore, the higher the balance transfer, the higher the transaction fee. A 4% fee on a $2,500 balance would cost $100.

After that, if you think you want to keep transferring your balance every six months, be careful. The hazard is that soon all this activity will show up on your credit report and before long, you will start to look like a bad risk. If you decide to try this anyway, make sure that you formally close all your credit card accounts yourself, and then notify the credit card company to identify the account as "closed at customer's request." If you don’t, on your credit report, it will look like the creditor closed your account and that will make you look like an even worse risk.

One more thing - when the new credit card company sends a notice stating that the balance transfer is complete, call your old credit card company and verify it. Write down the name of the person you talked to, the date, the time and what was said. Then cut up the old card.

Find a balance transfer credit card.

Read more about all our credit card offers - How to get the best card, what to avoid, things you may not know.

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