Devising A Plan To Wipe Out Your Old Credit Card Debt
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Tips To Manage Credit Card Debt

People in the United States are currently relying more and more on credit cards when they can't stretch their income enough to pay for everything. This is a dangerous trend, because not only are we racking up enormous amounts of debt, the credit card companies are raising interest rates and the amount of penalties. The Motley Fool reports that many companies that have lost money on risky mortgages are now raising credit card rates, possibly in an attempt to recoup some of their losses.

So while the dollar's value continues to shrink and Americans attempt to stretch it as far as possible, we are being charged more when we fail to make the budget work. And recent reports indicate that there are more of us failing to make ends meet each month.

CNN reports that consumers have accumulated more than $2.2 trillion in credit card debt in the past year alone. That number is certainly staggering, and does not even include gas and department store cards. Americans used over $2.2 trillion in credit by getting cash advances and making purchases on major credit cards. Cash advances generally carry an even higher interest rate than purchases, so this habit that consumers seem to be falling into is definitely very dangerous.

As money becomes tighter, less people are able to make their credit card payments on time. According to CardTrack.com, the percentage of people who are late on their credit card bills is higher now than it has been in three years.

Take Control Of Finances

It is time to take control of consumer credit card debt. There are steps that consumers can take to manage their accounts and avoid pitfalls that could mean more financial struggles, credit problems and even bankruptcy.

Filing for bankruptcy, for some, can actually be an attractive option if the debt is so overwhelming that it is affecting every area of life. Wiping the slate clean or reorganizing debt so that it is manageable can be a welcome relief and an opportunity to rebuild a solid credit score. There are times when this may be the best option, and speaking with a bankruptcy lawyer may help put things in perspective.

For those who feel that it is not time to speak with a bankruptcy lawyer, steps must be taken to get debts under control and manage finances so that payments can be made on credit card accounts.

Determine If Credit Cards Are A Problem

Financial expert Gerri Willis from CNN recommends that consumers take a hard look at whether or not their credit card spending is a problem. If there is a problem making monthly minimum payments on the accounts, that alone should be regarded as a red flag and action should be taken immediately. Also if loans from friends, family members or even high interest payday loan stores have to be obtained to make the payments, changes must be made to avoid racking up a tremendous amount of debt. Payday lenders and check cashing services charge outrageous amounts of interest and can contribute to the problem rather than provide a quick fix.

Tips To Get Lower Interest Rates

The Motley Fool recommends watching your mailbox for notices from credit card companies. They may be raising rates on credit card accounts and consumers should be aware of what they are paying. Usually the credit card company will issue an ultimatum that cardholders accept the higher rate in order to keep the account open. If the higher rate is rejected, the consumer may generally close the account and pay it off at the current rate.

Another recommendation by credit experts is to try to negotiate with the credit card company for a lower rate. With decent credit and a new credit card offer in-hand, a consumer may have some leverage. It is advised that the first person on the phone will always say no, and that you must ask to speak with supervisors and customer retention managers in order to get the person who can help on the phone. With the knowledge that another lower offer is on the table, creditors may be willing to negotiate. Consumers should be prepared to walk away, open the new account with a lower rate and transfer the balance if the negotiations are unsuccessful.

Make A List of Credit Card Debts

As difficult as it may be to look at the hard facts, consumers with credit card debt are urged to sit down and get out the cards and the credit card statements, a notebook and a calculator. Sometimes the key to getting a handle on financial problems is looking at the big picture and making sense of it all.

Making a list of not only credit card balances, but also the interest charged on each account is a good start. Consumers are advised by Gerri Willis of CNN to take on the highest interest accounts first, even if they are not the highest balances. Sometimes the balances from higher interest cards can be transferred to lower interest cards as well, or as we've covered here, interest rates can be negotiated in some cases.

By taking a good look at the credit card statements and assessing all of the charges, consumers can put together a plan of action to knock out the debt. By starting in the problem areas and paying off high interest debts first, the money spent on those payments can then be applied to the next problem area to knock it out as well. Once a plan is established and debts begin to get cleared, it can cause a snowball effect in the right direction until the credit card debt is paid off. Paying more than the minimum payment is always best to avoid long-term credit card debt.

Improving Credit Scores For Lower Rates

Not only does an improvement in a consumers credit score make it easier to get credit, it also can impact accounts that are already open. The Motley Fool and financial expert Gerri Willis agree that keeping a close watch on credit scores is important. If negative activity pops up on a credit report, creditors may use that information against the consumer and raise their interest rates because they have become a riskier debtor.

Looking at credit reports can certainly make your head swim. Credit reporting agencies seem to know every detail including addresses, past addresses, names used, nicknames, you name it and they know it. Creditors have access to all of this information and they monitor it closely. So it only makes sense that consumers should also be vigilant about monitoring this information. When something inaccurate is reported, consumers should act quickly to have it corrected. Otherwise it not only could cost more money on any future loans, but accounts that are already open as well.

A good credit score can also be important to obtain a mortgage loan, auto loan, insurance coverage, leases on rental properties for personal or business use - or even employment. A good credit score is pretty essential, so consumers must work to get their scores as high as possible and keep negative information off of these reports.

Making The Most Of Available Credit

John Ulzheimer of Credit.com advises that while consumers are on the phone negotiating for a lower interest rate with the credit card companies, they should also make a pitch for a higher credit limit. Part of the credit score is determined by how much of your available credit is being used; therefore a higher credit limit effectively reduces the percentage of credit that is in use.

Ulzheimer also advises not to close old credit card accounts, even if they are not in use. Keeping these accounts open is beneficial to the credit score because there is unused credit there and it also provides a long-term credit history on the credit report.

People with the highest credit scores utilize no more than 7 percent of their available credit. Therefore Ulzheimer recommends delaying purchases if possible so that no more of 10 percent of available credit is being used at any one time.

Craig Watts of Fair Isaac says that people who are using 50 percent or more of their available credit are doing severe damage to their credit scores. The new FICO '08 credit scoring model will be adopted in May, and people who are using more than 50 percent of their available credit will see heavier penalties. Fair Isaac is one of the companies that provide consumer credit scores in the U.S.


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