Credit card debt is one of several categories of debt that most of us have. Before diving into the topic of credit card debt, a brief discussion of debt, good debt vs. bad debt, is warranted. Generally, personal credit card debt is considered bad debt because it represents consumer spending, contrasted with the concept of business debt or investment debt, where the debt was incurred in leveraging to purchase an asset, or personal debt in financing your home through a mortgage. It's all about managing cash flow.
Also, be very cautious about debt-aggregation programs that may cost you more in the long run.
Tip 2: What Not To Do
So let's get started with some of the approaches people take that are not the best solution. 1. Transferring debt from a high-interest credit card to a low-interest rate card. This usually does not work out well due to the temptation of the available credit on the high-interest rate card. Also, this is not the most effective approach. 2. Home equity loans. Again, doing this to free up card balances usually results in more debt on your cards, plus more debt on your home. 3. Consolidation programs. As I mentioned, these usually cost you more in the long run because of the lure of lower payments, but you end paying more interest over a longer time period. 4. Bankruptcy. Whether it is Chapter 7 (liquidation) or Chapter 13 (reorganization), this should be avoided at all costs. The pain of the process, the effect on your credit for years, and the invasion of privacy are a very high price to pay. 5. Credit repair. While you should consider doing something to repair your credit, be careful in getting help. Do your research carefully.
Tip 3: The 5-Step Approach
The average credit card debt for households that have one is about $16,000. With an average interest rate on those cards of about 13%, that's a lot of money (about $2000 per year) going toward credit card debt. Paying off those cards as quickly as possible will save you a lot of money and increase your cash flow.
Here is the 5-step strategy.
Step 1: Organize your credit card debt by listing them as follows:
(a)Credit Card... (b)Balance....(c)Minimum Payment....(d)Interest Rate
Bank Q................$8,500.............$125.00..........................14.5%
Bank M................$2,850..............$ 75.00.........................12.9%
Step 2: Calculate your ratios: The last column (ratio) is (b) / (c), Balance divided by the monthly Minimum Payment (table for example only).
(a)Credit Card... (b)Balance....(c)Minimum Payment....(d)Interest Rate....(e)Ratio
Bank Q................$8,500.............$125.00.....................14.5%................68
Bank M................$2,850.............$ 75.00......................12.9%...............38
Step 3: Create your priority payoff list, filling in the following table:
(a)Order of Payoff....(b)Credit Card....(c)Ratio....(d)Minimum Payment
1.................................Bank M.............38................$ 75.00
2.................................Bank Q.............68................$125.00
Order the cards by listing the card with the lowest ratio first, and the rest according to the next lowest ratio, and so on.
Step 4: Your acceleration plan: Your task is to find at least $7 a day that you are spending, and don't need to. Let's face it, most of us spend money on a lot we can easily not! It might by a Starbucks coffee drink, eating out, junk food, or going to a movie. If you look at how you spend, you will have many to choose from. Let's say you can fairly easily save about $200 a month.
Step 5: Your new minimum payment: You are now going to add the monthly amount you saved in step 4 ($200 in this example) and add that to the minimum payment for the first card in your list. In our example, we will add $200 to the previous $75 minimum payment, and put in $275 as our new minimum payment. This will greatly accelerate paying off the first credit card. You will, of course, continue paying the original minimum payments on the other cards.
(a)Order of Payoff....(b)Credit Card....(c)Ratio....(d)Minimum Payment (new)
1.................................Bank M.............38................$275.00
2.................................Bank Q.............68................$125.00
Here is where it gets really interesting. When you pay off the first card, you add what you were paying on that card to the minimum payment for the second card. In our example, you will add $275 to the $125 payment for the second card. Our example would look like this:
(a)Order of Payoff....(b)Credit Card....(c)Ratio....(d)Minimum Payment (new)
1.................................Bank M.............38................PAID OFF
2.................................Bank Q.............68................$400.00
While this example has only 2 cards, notice how you will accelerate the payoffs every time you move down the list. This takes some discipline and commitment, but to succeed in anything you need these qualities. I hope that you will use this strategy to eliminate your credit card debt in record time.
Also, be very cautious about debt-aggregation programs that may cost you more in the long run.
Tip 2: What Not To Do
So let's get started with some of the approaches people take that are not the best solution. 1. Transferring debt from a high-interest credit card to a low-interest rate card. This usually does not work out well due to the temptation of the available credit on the high-interest rate card. Also, this is not the most effective approach. 2. Home equity loans. Again, doing this to free up card balances usually results in more debt on your cards, plus more debt on your home. 3. Consolidation programs. As I mentioned, these usually cost you more in the long run because of the lure of lower payments, but you end paying more interest over a longer time period. 4. Bankruptcy. Whether it is Chapter 7 (liquidation) or Chapter 13 (reorganization), this should be avoided at all costs. The pain of the process, the effect on your credit for years, and the invasion of privacy are a very high price to pay. 5. Credit repair. While you should consider doing something to repair your credit, be careful in getting help. Do your research carefully.
Tip 3: The 5-Step Approach
The average credit card debt for households that have one is about $16,000. With an average interest rate on those cards of about 13%, that's a lot of money (about $2000 per year) going toward credit card debt. Paying off those cards as quickly as possible will save you a lot of money and increase your cash flow.
Here is the 5-step strategy.
Step 1: Organize your credit card debt by listing them as follows:
(a)Credit Card... (b)Balance....(c)Minimum Payment....(d)Interest Rate
Bank Q................$8,500.............$125.00..........................14.5%
Bank M................$2,850..............$ 75.00.........................12.9%
Step 2: Calculate your ratios: The last column (ratio) is (b) / (c), Balance divided by the monthly Minimum Payment (table for example only).
(a)Credit Card... (b)Balance....(c)Minimum Payment....(d)Interest Rate....(e)Ratio
Bank Q................$8,500.............$125.00.....................14.5%................68
Bank M................$2,850.............$ 75.00......................12.9%...............38
Step 3: Create your priority payoff list, filling in the following table:
(a)Order of Payoff....(b)Credit Card....(c)Ratio....(d)Minimum Payment
1.................................Bank M.............38................$ 75.00
2.................................Bank Q.............68................$125.00
Order the cards by listing the card with the lowest ratio first, and the rest according to the next lowest ratio, and so on.
Step 4: Your acceleration plan: Your task is to find at least $7 a day that you are spending, and don't need to. Let's face it, most of us spend money on a lot we can easily not! It might by a Starbucks coffee drink, eating out, junk food, or going to a movie. If you look at how you spend, you will have many to choose from. Let's say you can fairly easily save about $200 a month.
Step 5: Your new minimum payment: You are now going to add the monthly amount you saved in step 4 ($200 in this example) and add that to the minimum payment for the first card in your list. In our example, we will add $200 to the previous $75 minimum payment, and put in $275 as our new minimum payment. This will greatly accelerate paying off the first credit card. You will, of course, continue paying the original minimum payments on the other cards.
(a)Order of Payoff....(b)Credit Card....(c)Ratio....(d)Minimum Payment (new)
1.................................Bank M.............38................$275.00
2.................................Bank Q.............68................$125.00
Here is where it gets really interesting. When you pay off the first card, you add what you were paying on that card to the minimum payment for the second card. In our example, you will add $275 to the $125 payment for the second card. Our example would look like this:
(a)Order of Payoff....(b)Credit Card....(c)Ratio....(d)Minimum Payment (new)
1.................................Bank M.............38................PAID OFF
2.................................Bank Q.............68................$400.00
While this example has only 2 cards, notice how you will accelerate the payoffs every time you move down the list. This takes some discipline and commitment, but to succeed in anything you need these qualities. I hope that you will use this strategy to eliminate your credit card debt in record time.
Bernarr Pardo: Investor in residential properties, commercial properties, raw land, foreign real estate, foreign bank account, the equity markets, and non-traditional investments such as oil and gas, wireless terminals, and ATM machines.
I believe you should invest in yourself first.
The global economy has presented huge challenges as well as opportunities. Avoid investing mistakes; discover how to reduce your investing risk. Learn some of the myths about finance and investing that can improve your cash flow and net worth. Explore great investing ideas and opportunities now at my blog site: http://HowToStudyFinance.com
I believe you should invest in yourself first.
The global economy has presented huge challenges as well as opportunities. Avoid investing mistakes; discover how to reduce your investing risk. Learn some of the myths about finance and investing that can improve your cash flow and net worth. Explore great investing ideas and opportunities now at my blog site: http://HowToStudyFinance.com
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