Credit card debt is something that many Americans have been forced to deal with throughout the past few years. Because of war, recession and more, many consumers have been forced to use their credit cards more than they ever would have in the past. Now that more and more people are starting to get back on their feet, more and more people are wanting to finally eliminate their credit card debts. Not knowing where to turn, tons of these people have been looking into credit card debt consolidation and settlement programs as a form of relief. But, is this best?
The truth is, credit card debt consolidation and settlement companies charge quite the substantial fee for their services in most cases. Although, this fee is usually paid over time, it still tends to be in the thousands of dollars. Also, these programs tend to have diverse effects on credit scores. But, is there a way to realize credit card debt relief without paying tons of money and harming your credit scores? Yes! As a matter of fact, there are 2! Below, you will find a credit card debt relief plan for those with great credit scores and for those with poor credit scores. The option you choose from there is all up to you!
Credit Card Debt Relief For Consumers With Poor Credit Scores
When you are dealing with debt and poor credit scores, you may feel like there is no way out. But, the truth is, it’s as easy as getting a plan together and committing to following the plan you’ve created. In this plan, I will teach you how to get prepared for debt relief, contact your lenders to ask for help and create a payment plan that will aggressively attack the interest charges that you are paying! So, without further ado, here are the steps…
Step #1: Getting Prepared – To get prepared, you will need to make 3 lists. The first list should be of your credit card debts. In this list, you should include the lender name, account number, customer service phone number, balance and interest rate for each of your outstanding credit card debts. Also, be sure to order your list from highest interest rate to lowest. The next list that you create should be a list of your income sources. This list should include all sources of income except alimony and child support if you receive them. Finally, create a list of all of your monthly expenses. And, I mean ALL of your monthly expenses. Everything from rent to food, gas for your car and anything in between that you pay on a monthly basis should be included in this list.
Step #2: Asking Your Lenders For Assistance – Although we often think of lenders as big, bad corporations that don’t care much about consumers, this isn’t exactly the case. The truth is, without us, lenders would have nothing! Therefore, when we find ourselves in impossible financial positions, we find that many lenders we have created relationships with will be willing to help. Start by calling the lender with the highest interest rate. When the representative asks what they can help you with, simply say “I’m calling because I’m having an incredibly hard time paying this debt back. I know I owe you the money and have all intentions of paying but, it’s almost impossible for me to maintain our current agreement. Is there anything you can do to help?”. At this point, the representative will ask you questions about your income and expenses. You should already have all the answers on your lists. Continue to call all of your lenders until you’ve spoken with each one.
Step #3: Re-create Your List – Now, chances are, you have lower interest rates on half or more of your accounts. So, you will need to create a new list of your credit card debts. Make sure to include all the information that you included before and order your list from highest interest rate to lowest.
Step #4: Create An Aggressive Payment Plan – As you pay your credit card balances down, your minimum payments go down. Therefore, even if you can only afford to pay minimum payments right now, in a month or two, you should be able to afford more. This aggressive payment plan is based on that fact. First, add up all of your minimum payments and commit to sending no less than the total until all of your debts are completely paid off. Now, as your payments go down on all of your accounts, use the extra funds to aggressively pay off your highest interest rate account. Once that is paid off, move to your next highest interest rate and continue your plan until your debts are completely paid off.
Credit Card Debt Relief For Consumers With Good Credit Scores
If you have good credit scores, you don’t want to close any accounts. Using the option above, lenders will require you to close your accounts before offering assistance. With that considered, if you have good credit scores, I’ve got another plan for you. Here it is…
Step #1: Get Prepared – As you know, preparation is key in any process. For this option, you will want to make a list of all of your credit card debts just like the list mentioned in the option for those with poor credit scores. In your list, you should include lender names, account numbers, customer service phone numbers, balances and interest rates for all of your outstanding credit card debt. This list should also be in order from your highest interest rate to your lowest.
Step #2: Give Your Lenders A Chance To Keep You – Before we look into the different balance transfer offers that are available to you, it’s best to give your lenders the option to keep your business. To do so, simply call your highest interest rate lender. When you are asked how they can help you, say, “I was going through my credit cards today and, I noticed that I’m paying a pretty high interest rate. I like the bank but, I can’t see myself paying this high of a rate. Is there anything you can do or should I consider balance transfers?”. At this point, 30% to 50% of your lenders will be willing to reduce your rates to keep your business. That is, if you have sent your payments on time for at least the last 12 months.
Step #3: Transfer Balances If Banks Don’t Deal – If your lender isn’t willing to reduce your interest rate, you can always make good on your promise. Look into themarket and see if there are any offers that will provide lower, long term interest rates for your debts. If so, apply for the cards that are best and transfer your balances to lower rates!
Step #4: Re-write Your List – Because some or all of your interest rates have changed at this point, it’s best to re-write your list and update it from highest interest rate to lowest. This will help you to create an aggressive payment plan.
Step #5: Create An Aggressive Payment Plan – Finally, it’s time to create an aggressive payment plan to completely pay off your debts. To do so, add up all of your minimum payments. Ask yourself, “Can I afford to pay more?”. Come up with a total that you can comfortably afford to consistently pay. Now, pay minimum payments to all lenders except for the one with the highest interest rate. All extra funds should be paid to this account. Once your highest interest rate credit card debt is paid off, allocate all of your extra funds to the next highest rate. Continue to do so until your debts are completely paid back!
Although credit card debt can make you feel alone, you are not. There have been thousands of consumers that have saved thousands of dollars each in interest and years in paying back their debts who have followed one of the debt relief plans above. Unless you are dealing with extreme cases of financial hardship, you should never need to pay someone to manage your debts for you. As you can see, it’s just as easily done at home!
This article was written by Joshua Rodriguez, proud owner and founder of CNA Finance. Join the conversation about this article or any other personal finance topic of your choice on Google+!