Help! I'm Drowning in Debt!
Are you overwhelmed with debt? Do you dread checking the post as there always seems to be another bill?
Chances are that some of those bills are for credit cards. If you can learn how to manage your credit card debt, you will quickly find yourself in much better shape. This is because not only will you save lots of pounds in interest charges, but if you ever miss a payment on your card(s), it can go on your credit record as a black mark for many years. This could hurt your chances of getting credit in the future, such as for a loan or mortgage.
You're not alone
Credit cards have brought with them tremendous convenience, but also tremendous debt. Millions of people are mired in debt, so don't feel that you are alone. The trick is to figure out the best way to get on the right track and then stick to your plan.
To help you get started, here are six key actions you can take to start reducing your credit card debt:
#1: Pay at least the minimum and pay on time.
If you ever want to even hope to pay off your credit card debt, you absolutely must pay the minimum payment amount listed on your statements. Equally important here is making that payment on time, since late payments result in finance charges that will make next month's minimum payment even higher. The more you can pay over and above the minimum, the better.
#2: Pay off highest-interest cards first.
Once you've made the minimum payment on all of your cards, make additional payments over the minimum to pay off the highest-interest cards first. Work your way down to the lower interest rate cards.
#3: Make a budget.
Yes, it sounds stodgy, but it's important! Sit down with a pen and a calendar and literally schedule your payments. Include what you will pay each creditor.
#4: Start your own system for credit card debt reduction.
Create a structured system for paying your bills. Set deadlines and rules and stick to them! Need help getting organized? There are some great software programs that are easy to use and that can help you with this task.
#5: Negotiate with your creditors if you can.
If you can negotiate with the credit card companies, you can really help yourself meet that goal of eliminating your credit card debt. Why will they listen? The answer is simple: There are literally thousands, even millions of people out there with credit card debts just like yours. As a result, creditors have realized that they need to be flexible. Their approach is that it's better to have someone pay a lower interest rate or work out a deal than have them walk away and default completely. Even a few percentage points knocked off your interest rate can save you hundreds of pounds, so summon up your nerve and make that call.
#6: Keep creditors informed.
If you have so many debts that you cannot possibly work on paying them off all at once, take the initiative of writing letters to creditors to explain your situation. Don't give a big sob story about how you got into this situation in the first place; stick to the facts! Clearly and concisely explain your situation and give them a realistic date that you will begin repayment. Why should you do this? Well, most creditors will appreciate your openness and will generally treat you more nicely - you won't be seen as hiding out from them. Don't abuse this though: honour your commitments and start repayment when you say you will.
What happens if you fall behind on payments?
If you can't manage to meet even the minimum monthly balances, it's time for drastic action:
Part with your credit cards. If you have many cards, consider cancelling some of them, but don't necessarily cancel all of them, especially if you have a low credit rating (as it will be difficult to obtain new ones in the future). Rather, take them out of your wallet and lock them up - some people put them in a safety deposit box, while others swear by freezing them in a block of ice in the icebox.
Budget, budget, budget. Eliminate unnecessary expenditures immediately. You will be surprised to learn where you money is really going if you keep an actual diary of every cent you spend for a week or two - and be able to clearly determine where cuts can be made. If you have a family, work together on a budget.
Consider using savings. If you have savings, evaluate whether to use some of them to knock off your debt. Compare the interest rates you are paying on the cards versus what you are getting on the savings and it may be worthwhile.
Still having trouble?
If you still feel overwhelmed even after making some key changes and following a plan to get back on track, additional help is available.
The Citizens Advice Bureau (CAB) is a registered charity that provides free, impartial and confidential advice on debt management. Visit www.nacab.org.uk for more information.
Note: Be wary of (and avoid) "credit repair" agencies that offer to remove late payments or bankruptcies. More often than not these agencies exist to prey on vulnerable consumers who are often desperate for help.
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