You go out to your mail box to see if there is a birthday card from your aunt Sue but low and behold the only thing in the box is your monthly credit card statement. The envelope is really fat this time and you cringe as you reach inside your mailbox to retrieve the monster. You go back into the house and place it on your desk without opening the envelope. Perhaps you put some other papers on top of the envelope so that it just doesn’t look that important. Frankly you are terrified of what it will say! Consumer credit card debt is at an all time high in North America. Banks and other lenders are eager to lend money and many of us want more than we can afford and it is a recipe for disaster. Couple credit card debt with large mortgages, car loans, and possibly other consolidation loans and the monthly payments can be stifling not to mention damaging to your credit rating.
It is important to understand that if you cannot make your credit card monthly payment, that is pay the full amount on the card, you are in financial distress!
So what do you do?
Well getting and staying out of debt is very simple compared to other personal finance topics. The answer is to never spend more than you make! Simple right? But we all know it is not that easy. Below are some simple steps you can use to pay off credit cards, lower credit card debt, and get some debt relief.
Simple Strategies to Debt Relief
1.) Stop using credit cards. If you a large amount of credit card debt, you do not need to add to your debt problems. Leave your credit cards at home, lock them in your safe deposit box, or freeze them in a block of ice. By making your credit cards inaccessible you are forcing yourself to think whether you really need to make that purchase.
2.) List all of your debts. Sort them by the interest rate from highest to lowest. Know what you owe and be prepared to deal with what you see. Facing the reality is a major step in realizing the problem so that you can focus on the solution.
3.) Create a cash flow statement. List all of your cash in flows and all of your out flows. Make sure you give priority to shelter and food first. All other expenses are truly discretionary in that they can be eliminated or reduced (ok, so shelter can be reduced by moving into a smaller home, but only consider that option if your really need to).
The cash flow will tell you what money you have coming in and where it goes every month.
4.) Make an action plan. You first need to ensure you can make all of the minimum payments. Then look at your options:
- Tackle the cards with the highest interest rates first. You need to get rid of the highest interest expenses first because they will cost you more in the long run. However, if you want a quick feel good fix, you can pay off some of the smaller balance cards first.
- Call your credit card company and see if you can negotiate a lower interest rate on your cards.
5.) Debt consolidation. In many cases It makes sense to obtain a debt consolidation loan especially if you think you’ll be paying off debt for the rest of your life. Often you get a much lower rate of interest and a fixed and manageable monthly payment. However, once you consolidate debt, take heed of the next point and reduce the number of credit cards you have.
6.) Reduce the number of cards you have. One or two is more than sufficient. Ask yourself if you need to have more than one credit card. Ask what you use all of these cards for. Often using a single credit card will help you consolidate your purchases onto a single statement and you can make a single payment.
7.) Lower your credit limit. This one is almost heresy in todays world of consumerism. Do you really need a credit card with a $50,000 limit? Your total credit card limit should be at a level you can pay off with your available cash or short-term investments and no more. By reducing your limit to a level you can pay off your debts monthly.
8.) Fix your limit. This is another tip that is considered heresy. Your credit card provider loves to increase your limit so that you spend more and more and help spiral your debt out of control. Call your credit card company and tell them only to increase it when you ask ( and of course you’ll ask only if it is increased to a manageable level, right?).
9.) Take more drastic steps. If you have taken all of the steps possible and explored all avenues above then you might need to take more drastic measures:
- Consider downsizing your car or truck. A smaller, more fuel efficient, less expensive used vehicle may free up needed cash to get you out of debt. Keep in mind that this option can be costly if you buy a lemon.
- Consider downsizing your home. Perhaps you can get a small home with a smaller mortgage at a lower rate. This takes planning as well as the costs to break out of an existing mortgage can be costly and might not be worth it in the long run.
If all else fails, then you might need to consider a proposal to creditors or bankruptcy. These are the most drastic steps and can have an impact on you for many years to come.
In most cases, you should be able to pull yourself out will a little planning and preparation. Like anything rewarding, it takes time and effort.