In a December 2009 MSN Money report, John W. Schoen states that many credit card users are drowning in debt due in part to an unregulated financial industry that permitted high maximum limits coupled with artificially low minimum monthly payments. If most of your money is applied toward interest on account balances, you need a successful credit card debt elimination plan that makes more than just a minor dent in your principal amount of debt. This can only be accomplished by making larger than minimum monthly payments.
DIY Credit Card Debt Plan
The most important step to credit card debt elimination is preparing a budget. Schoen advises looking at the past three months of expenses and making an itemized list to ascertain how much money came in and what you spent it on. If the sum total of expenses is more than the amount of monthly income, it's time to whittle down unnecessary expenses. Schoen urges moving as many items into the "non-essential" column as possible, as well as considering items that can be sold to pay off credit card debt.
Get Balances Down
Credit card debt elimination can be accomplished, but not by making minimum monthly payments. You can use one of two strategies to tackle debts one at a time. One method is to pay off the credit card balance with the highest interest rate first, then move on to the balance with the next-highest interest rate and so on until all debts are paid. The second method is to pay off the card with the lowest balance, and then the card with the next-lowest balance. Minimum payments are made on all other credit card balances. Schoen suggests making the designated credit card debt a "first of the month" bill, along with your other essential bills. He also states that setting up automatic payments to the creditor helps you stick to your plan. Once the money is withdrawn, there's less discretionary income to spend on non-essentials.
When To Get Help
The Federal Trade Commission advises those who can't stick to their plan to eliminate credit card debt to seek help through a credit counseling organization. However, choosing a reputable credit counselor is a key ingredient to successful debt management. The Federal Trade Commission warns that even some nonprofit credit counseling services can impose hidden fees and charges. Find a member agency of the National Foundation for Credit Counseling. A reputable credit counseling service will be upfront about the fees it charges, offer a wide variety of options and make suggestions based on your financial situation.
Debt Management Plans
A credit counselor may suggest enrollment in a debt management plan as an alternative to filing for bankruptcy. This systematic method of addressing credit card debt requires you to make monthly payments to an account maintained by the credit counseling organization, which acts as the account trustee. The credit counseling agency then pays your credit card bills. Often, a credit counselor will negotiate lower interest rates with creditors so that account balances can be paid off sooner. The National Foundation for Credit Counseling notes that most debt management plans take between 30 and 60 months to complete, during which time you cannot acquire new credit card debt.
Debt Elimination Scams
Companies offering to provide credit card debt elimination services employ a variety of persuasive sales pitches. Some say you can consolidate credit card debt without a loan. Others may claim you will be free of creditor harassment, foreclosures, garnishments and foreclosures while keeping your property. The Federal Trade Commission warns that these companies often propose bankruptcy, the debtor's last resort. Schoen points out that many credit card debt elimination services will get you deeper into debt. Ignore email offers and Internet advertisements pitching debt consolidation, debt settlement, credit repair and other "get out of debt free" scams.
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