More of The Credit Card Action Plan

Additional Tips for Getting Your Debt Under Control

Jan 24, 2009 Armand Famiglietti

Now that you've realized the amount of debt in front of you, it's time to take your financial future into your own hands. Here's how to pay down that debt.

Please be sure to read Part One of this article before continuing with this section.

Which Debt to Pay First

This isn’t a hard one to figure out. Pay the most amount of money you can to the credit card which has the highest interest rate. On the other cards, pay the minimum until the first one is paid off. On a sizeable debt, this will literally take years off your payments.

Negotiate with Creditors

This sounds like an insane solution, but it’s actually possible. Call each creditor and ask if there’s any way that they can reduce your interest rate. It’s always good to mention you’re thinking of transferring the debt. Remember, they’d rather have $20,000 of your debt at 25 percent, than none of it at 30 percent. And in the example above, every point you get a creditor to drop saves $500 per year. Over a 3 year period of paying down debt, that saves $1500.

Look for Balance Transfers

Besides ultimately getting rid of your debt, the next best thing you can do is to aggressively try and reduce that interest rate. Look for balance transfers that are at lower rates. If you get a promotional offer at 8 percent for the life of the balance, and you’re currently paying 20 percent, you can save quite a bit of money. On the $50,000 example above, you’d save about $6,000 per year. If it takes you 5 years to pay off that balance, you’ll have saved around $30,000.

However, there are some things you must watch out for when you’re looking to transfer balances. Some transfers offer teaser rates for 6, 12, or 18 months. This means they’ll give you a low rate up front and then raise it significantly after that time period. You must do the math on your individual accounts to make sure that it makes sense for your situation.

Also, watch out for the transaction fees. When creditors first started offering balance transfers, they were at 3 percent with a cap at $75. Recently, they’ve removed the cap. So if you’re trying to move money and it only saves you a few points in interest, you may be adding that interest right back on in the manner of a transaction fee. Remember, each situation will be slightly different, so make sure to do the math before you make the balance transfer.

Keeping a Positive Attitude

Debt can cause people to lose hope that they’ll ever get out from under it. Remember that Rome wasn’t built in a day. And for the most part, your debt took awhile to build as well. So while it will take some time to pay down, it can be accomplished. One suggestion is to create a graph or chart. As you make a payment on each credit card, show your balance going down. It’s a great way to visually stimulate you toward success.

Seek Help

While the best thing for your credit score is to pay the debt down yourself, seek help if the debt becomes so insurmountable that you risk losing vital assets.

The copyright of the article More of The Credit Card Action Plan in Personal Budgeting/Finance is owned by Armand Famiglietti. Permission to republish More of The Credit Card Action Plan in print or online must be granted by the author in writing.

Formulating the action plan

The all-poweful credit card!

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