Real Estate Insights

I though that I would try to distract everyone from the doom and gloom news from the housing market that keeps hitting your ears lately. So today I would like to share some helpful tips to help you get out of credit card debt.

Have you ever heard the saying: “Credit card debt is like mold, the longer you ignore the problem, the more wildly it grows.”  You may have noticed that once you have accrued large balances on your credit cards, it seems almost impossible to pay those suckers off. This is what the credit card companies are relying on. For consumers to rack up their balances, make late payments and not try to pay off their balances immediately.

Especially when you're young, the short-term freedom that credit cards provide can be seductive: Spend now, pay later. But over the long term, piling up too much debt, or failing to pay it off on time, can make it harder for you to buy a car or a house later.

Now I’m not suggesting that having credit cards is a bad thing, rather I’m suggesting that not actively managing your credit cards can lead to major problems. So, I would like to suggest that you follow a general rule: Don't buy anything on plastic that you can't pay off at the end of the month. That principle applies whether you're charging gas or a flat-screen TV to your credit card.

The reasoning behind this rule comes from the fine print found in your cardholder agreement which states that the credit card company can increase your interest rate being charged on any revolving balances, those balances that carry over every month, without notifying the card holder. So, if you read the fine print on the next credit card offer you receive, which for the average American is daily, you may discover that the low rates advertised are only good for purchases and not revolving debts. Also, when you miss payments you may see your interest rate increase upwards of 20% - 30%.

So I have outlined the following tips to help you reduce your credit card balances and regain control of your debt:

1. Limit your card use.

The first step to get yourself closer to becoming debt free is to limit what you are currently spending on your credit cards. Take out you last few statements and itemize what you have been paying via your cards.

Stop paying those revolving monthly fees on credit cards such as gym memberships, or other club memberships, rather pay them directly from your checking account. Also, if you are constantly traveling and like racking up your bonus airline miles, be sure to immediately pay off your expenditures at the end of the month. This is one incentive that we all seem to fall prey to, just remember that credit card rewards aren't worth the risk of finding yourself deeper in debt.

To help eliminate the temptation of credit cards, consider cutting some cards up. You could also close some of your credit card accounts. But, definitely think twice before closing your older accounts, because doing so could hurt your credit score.

Generally credit cards that are 5 years or older with perfect payment history and low balance to limit ratios are scored the highest. In fact, as long as you use your credit cards at least once every 6 months, you will keep them active according to the credit bureaus standards. So, it is important for you to think about which credit cards you want to keep and which ones you can destroy.

Also, be sure to avoid department store credit cards. Don’t fall for the 15 – 20% savings they offer on your initial purchases, as these cards offer the highest interest rates and late penalty fees. They are also the hardest to negotiate with later if you try to lower your rate or waive penalty fees.

2. Negotiate lower rates.

If you find that you are currently accruing interest rates as high as 20-30% on your credit cards then you may want to call your creditor and negotiate for a lower rate. Just remember that the national average for credit card interest is 15%, and many people have even negotiated with their creditors to permanently reduce the interest rate on their cards to below 6%.

One call to your credit card issuer can sometimes lower your interest rate by a few percentage points and help you emerge from debt more quickly. In the competitive credit card industry, most issuers will seriously consider your request for a lower rate, especially if you're a good customer who pays on time. For extra ammunition while negotiating with your creditor, have a few credit card offers available when you make the call and make the creditor believe that you are seriously considering transferring your business to one of the offers you are holding.

If all else fails, keep calling back until you get someone who is willing to listen to you and don’t stop until you get what you want!

3. Pay your bills on time.

What do on-time payments have to do with getting out of debt?  Plenty. As I mentioned above, creditors have the ability to increase your rates if they receive your payments after they are due. Many banks adjust interest rates on your credit cards by looking at your payment history not only with them but also with other creditors. That means that if you forget to pay any bill one month, your credit card rate could jump significantly, thereby incurring fees and higher interest rates. And because negative information typically stays on credit reports for seven years, one mistake can lead to higher rates for everything from credit cards to mortgages and car loans.

For example, if you have very trade lines on your credit and a lender has just reported a 30-day delinquency against your credit, then your score can tumble up to 100 points. So if you have trouble remembering to make your payments on time, you may want to consider setting up automatic transfers from your checking or savings account to your credit card issuer to make it easier to pay on time. Also, read the fine print on your card statements. Some banks now set cutoff times (for example, 2 p.m. on the due date) for when you have to get your payment in, making it harder to avoid late fees.

4. Target the smallest balances first

The best way to start climbing out of debt is to concentrate on paying off the cards with the smallest balances first. This does not mean you should stop paying on higher balance cards, just focus your extra payments to those cards with the smallest balances. Once you begin to pay off these cards, you should gain a sense of accomplishment that will help you continue to attack your balances.

5. Avoid debt consolidation plans

By following the steps above you should be able to start reducing your credit card debts and start regaining your freedom on your own. The last thing you need is to sign up with a company that offers you a plan that will eliminate your debts miraculously. Their claims are not true and by utilizing their services your credit scores will suffer. The creditors reporting on your credit will start reporting to the bureaus that your accounts are involved in a debt management company which will impact your scores almost as much as a bankruptcy, not to mention that fact that these companies are not cheap – don’t fall for their not-for-profit advertising campaigns or you may find yourself wondering what part of not-for-profit did they mean!