Credit cards are big business in the United States. Americans' affinity for credit, in fact, could be described as a love affair: According to the November 2009 Nilson Report, total purchase volume on U.S. credit cards in 2008 was $2.15 trillion, up 1.4 percent from 2007. But the cards can be a quick way to big financial trouble for consumers. Fortunately, if you are in over your head in credit car debt, there are ways out of it. They take patience and discipline.
How to Solve the Problem of Credit Card Debt
Step 1
Stop charging. This has a couple of advantages. For one thing, it breaks the cycle that got you into a financial quagmire in the first place. If you fail to take this step, all of your other efforts are likely to be futile, because you will end up in credit card debt again. The other upside is this: As part of your financial recovery effort, you will want to try to negotiate a lower interest rate on your existing credit card debts. Even if you are successful, though, new purchases may still be charged at a higher interest rate. And payments are generally applied to the lower-interest portion of the debt before the high-interest portion. The result: You lose.
Step 2
Pay more than the minimum amount due. Minimum-payments are not set up as a way for you to pay off the debt in a timely manner. They are designed to keep you paying for a long time as the debt never really shrinks. The upshot is that the credit card company collects plenty of interest. You, however, never get rid of your debt problem. Send in as much as you can, even if it is only a few dollars over the minimum.
Step 3
If you have several credit cards, pay down the one with the highest interest rate first, then attack the one with the second-highest interest rate, and so on. This method minimizes the total money you pay out in interest. However, if you have a card with relatively low balance that you can knock out quickly, it may be worth the psychological boost of paying it off first regardless of the interest rate.
Step 4
Ask for a lower interest rate. Sometimes all you have to do is ask. It helps credit card companies avoid precisely the two things they do not want: you transferring the balance and paying interest to another company, or you defaulting on the debt. If a friendly discussion as a valued customer does not get you anywhere, then ask specifically for a "hardship" program that includes terms such as lowered interest or deferred payments. The companies do not publicize these programs, but they sometimes offer them to customers experiencing divorce, job loss or other adverse circumstances.
Step 5
Consider a balance transfer. Credit card companies frequently send out offers that allow you to move your debt from another card to theirs at a low interest rate, sometimes 0 percent. But take note: The low interest rate always lasts for a limited period, such as six months. After that, you will be back to high interest. So think twice about the transfer if you do not think you will be able to pay off the balance completely within the low-interest period.
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