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If you have credit card debt and want to know how to get out of it, then this page will help you assess and come up with a plan. It includes information on how to lower your interest rates and increase your income.
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Credit Card Tips
- Create a budget to avoid future debt.
- Reduce you spending so you have more money to put towards your debt.
- Try to reduce your interest rates by negotiating with your credit card company.
- See if you can get approved for a credit card with a lower interest rate.
- Pay off one card at a time.
- Borrow or earn extra money to put towards your debt.
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Introduction
- Credit card debt happens to everyone. Credit card debt for households has doubled in the past ten years.ABC News: Tips to Get Out of Credit Card Debt ( May 4, 2006) The current family has nearly $10,000 in credit card debt.CNNMoney.com: Top Tips: Get Out of Credit Card Debt (January 3, 2008) If you find yourself drowning in a sea of debt, you may feel that there is no hope. However, there are ways that you can get--and keep--your head above water.
Step 1: Assess Your Debt
- YouTube Video: 5 Ways to Get Out of Debt Faster (Time: 2:12)
- Your first step is to assess exactly how much debt you have.Kiplinger.com: How I Kicked the Credit-Card Debt Habit About.com offers a PDF Debt Load Worksheet that can help you.About.com: Debt Load Worksheet
- Take a moment to look at your debt. Here are some warning signs that you have a problem:
- Your debt totals 15 percent or more of your income.CNNMoney.com: Top Tips: Get Out of Credit Card Debt (January 3, 2008)
- You can't make the minimum payments.CNN.com: When Credit Cards Put You in Jeopardy
- You have been borrowing from friends and family to make payments.CNN.com: When Credit Cards Put You in Jeopardy
- You have used a lender with high rates that you normally wouldn't.CNN.com: When Credit Cards Put You in Jeopardy
- You pay one credit card's bill with another credit card.BlueSuitMom.com: Get Out of Debt
- You need to pay for essentials using your credit card.ABC News: Tips to Get Out of Credit Card Debt ( May 4, 2006)
- You are unable to put any money toward savings.ABC News: Tips to Get Out of Credit Card Debt ( May 4, 2006)
- You are lying to someone about your debts.ABC News: Tips to Get Out of Credit Card Debt ( May 4, 2006)
<iframe height="339" width="425" src="http://www.msnbc.msn.com/id/22425001/vp/28040290#28040290" frameborder="0" scrolling="no"></iframe> - MSNBC.com: Digging out of Debt (Time: 2:16)
Step 2: Analyze Your Spending and Create a Budget
- Next, you need come up with a budget. You need to create a budget that keeps you within your means and stops your reliance on credit cards.About.com: How to Get Rid of Credit Card Debt Don't worry if your budget exceeds your income at this point. That will be covered in the next step, Reducing Your Expenses.
- For this step, you will start by listing your fixed expenses, or the ones that are about the same each month such as your rent or mortgage payments. Then, list the variable expenses such as entertainment, recreation and clothing.Dayton Daily News: Getting Out of Credit Card Debt Make sure you list all your expenses, no matter how small. This will help you determine where your money goes each month.Kiplinger.com: How I Kicked the Credit-Card Debt Habit
- For more information, check out Mahalo's How to Make a Budget.
Step 3: Reduce Your Expenses
- Now it's crunch time. You need to figure out how to reduce your living expenses. This may mean you have to make some sacrifices. Consider this your chance to find a way to live within your means and avoid future credit card debt. It can help if you try to categorize your expenses are "necessities" and which are "conveniences" or "other." Then, focus on reducing the money spent on necessities while cutting back on conveniences and other expenses.Energy Bulletin: Get Out of Credit Card Debt! Now! Your goal should be to keep your living expenses as low as possible, thus freeing up funds to pay off your credit cards.MSN Money: Huge Debts, Paid Off Fast
- Stop using your credit cards.Youcandealwithit.com: How to Get Out of Credit Card Debt
- Resolve to only spend money on things you can pay for today.The Motley Fool: 60-Second Guide to Getting out of Debt (March 24, 2008)
- Delay any purchases that you can.CNN.com: When Credit Cards Put You in Jeopardy
- Buy only the things you need and can't get elsewhere.Kiplinger.com: How I Kicked the Credit-Card Debt Habit
- Reduce your gift-giving budget and how much you eat out.BlueSuitMom.com: Get Out of Debt
- Avoid going to stores to browse.Kiplinger.com: How I Kicked the Credit-Card Debt Habit This will help stop impulse buying.BlueSuitMom.com: Get Out of Debt
- Mahalo has a number of pages that can help you reduce your expenses and save money located in the Finance How To section including:
Step 4: Reduce Interest Charges
- Your next goal should be trying to reduce the interest charges you are racking up on your credit card. Remember when you calculated your debt back in Step 1? Pull it out and look at the different interest rates. You are going to need it for some of these steps.
Negotiate for a Lower Rate
- As the saying goes, "It doesn't hurt to ask." You best option to reduce your costs is to call the credit card company and request a lower rate.Denver Business Journal: How to Dig Yourself Out of Credit Card Debt (July 4, 1997)
- Explain that if you don't receive a lower rate, you will transfer the debt to another company.CNNMoney.com: Do It Now -- Get Out Debt (May 9, 2006)
- If your credit score is high enough, this should shave a few points off your percentage rate.CNNMoney.com: Do It Now -- Get Out Debt (May 9, 2006)
- It may also help to inform them that you are having difficulties making payments, as most companies will not want to write off the debt.StudentFinanceDomain.com: 5 Easy Steps to Get Out of Credit Card Debt
- Although this may make you uncomfortable, you need to stand firm.The Motley Fool: 60-Second Guide to Getting out of Debt (March 24, 2008)
- For more information, check out Mahalo's How to Lower Your Credit Card Rates.
Open a New Account
- If you can't get a lower rate, or if you lowest rate is still quite high, you may want to shop around for a card with a lower interest rate.CNNMoney.com: Do It Now -- Get Out Debt (May 9, 2006) Many cards offer low introductory rates.Denver Business Journal: How to Dig Yourself Out of Credit Card Debt (July 4, 1997) Try to find cards that have the lowest introductory rate as well as low rates afterwards.CNNMoney.com: Do It Now -- Get Out Debt (May 9, 2006)
- For more information, check out Mahalo's How to Get a Low Interest Rate Credit Card.
Move Balances Around
- Now you need to figure out if you can do any moving around. Transfer as much debt to cards that have the lowest interest rate.Dayton Daily News: Getting Out of Credit Card Debt Make sure you know if there is any charge for transferring before you make your decision.Salary.com: 12 Ways to Get out of Credit Card Debt Also, beware of cards that offer low introductory rates that skyrocket after the promotional period ends unless you can get the balance paid off before that point.About.com: Get Out of Debt
Step 5: Come Up With a Plan
- Once you know how much you have, you can come up with a plan to reduce the debt. To start, plan on paying at least the minimum on every card you have. However, you can't afford to pay only the minimum on all your cards. If you do, it could end up taking you years to pay off the debt.CNNMoney.com: Top Tips: Get Out of Credit Card Debt (January 3, 2008) Your goal should be to pay as much as you can afford each month towards your debt.Salary.com: 12 Ways to Get out of Credit Card Debt
- If you are paying off several cards, then there are a couple of different plans you can use to pay off your debt. However, they all amount to focusing your payments towards getting one credit card paid off at a time, while paying just the minimum on your other cards.The Motley Fool: 9 Ways to Pay Off Debt (March 25, 2008) You have two choices on which card to pay off first:
- Sometimes, these two may be the same. If they are not, then you will need to figure out which one will cost you the least amount of money. Two good tools you can use are CNNMoney.com's Debt Reduction Calculator or WhatsTheCost.com's Snowball Debt Calculator.CNNMoney.com: When Will You be Debt Free? WhatsTheCost.com: Snowball Debt Calculator Once you get one card paid off, funnel your payments into a second card.Youcandealwithit.com: How to Get Out of Credit Card Debt Repeat this process until all your cards are paid off.
Step 6: Find Extra Money
- If you can't afford to pay the minimum on your cards, or if you want to speed up the process of paying off your credit cards, then it's time to look for some extra cash. There are several sources of money you may not have considered:
- Borrow if the terms will be less than your credit card interest rates.CNNMoney.com: Top Tips: Get Out of Credit Card Debt (January 3, 2008) Sources of funds include:
- Friends and family.Salary.com: 12 Ways to Get out of Credit Card Debt
- A life insurance policy.The Motley Fool: 9 Ways to Pay Off Debt (March 25, 2008)
- A home-equity loan.Denver Business Journal: How to Dig Yourself Out of Credit Card Debt (July 4, 1997)
- Your 401(k) plan.Salary.com: 12 Ways to Get out of Credit Card Debt
- Cash in any savings or investments you might have.Salary.com: 12 Ways to Get out of Credit Card Debt Your credit card interest will be much higher than the interest you are earning.Denver Business Journal: How to Dig Yourself Out of Credit Card Debt (July 4, 1997)
- Sell any extra items in a yard sale.About.com: Frugal Debt Reduction Ideas
- Get a part-time job.MSN Money: 20 Ways to Make $100 More a Month
- Change your withholdings on your W-4.Kiplinger.com: How I Kicked the Credit-Card Debt Habit
Conclusion
- For more information on debt relief, check out Mahalo's other pages including How to Get Out of Debt, How to Consolidate Student Loans, How to Consolidate Your Bills and How to Survive a Recession. Remember, that everyone can go through a rough time. The sooner you get out of it, the better you feel about yourself and the better your credit rating will become.
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