Freeing Yourself from Credit Card Debt

As anyone who has ever dealt with credit card debt knows, the problem can sneak up on you. At first, you pay your balance every month, but as you continue to charge more and more items, you find yourself paying only part of your monthly balance. Soon even the minimum payment seems too high.

If you've made the decision to cancel credit card debt for good, you have several options. However you decide to eliminate that debt, however, it's important to change your spending habits by using cash rather than credit based transactions. Otherwise, you'll soon find yourself back in the same hole.

If you own a house or a car, you may be able to refinance your loan to include the credit card debt. You pay off the credit cards with the loan money, and make a monthly payment to the lender until the loan is paid off. Before selecting this option, calculate the monthly payments and make sure you can afford them. If you don't make the payments on time, you are at risk of losing your house or your car. Once the credit card debt is paid off, keep one low-balance card for emergencies and destroy the rest. That way you won't be tempted to start the credit card cycle all over again.

If you have several credit cards with low balances, you might want to consider transferring all of your debt to the credit card with the lowest monthly interest rate and destroying the rest of the cards. If you do this, you will have only one payment per month. Whenever possible, try to pay more than the monthly minimums, and you will soon see the balance shrink. This method, too, however, has some drawbacks. If your creditor decides to raise your monthly interest rate, you could easily find yourself paying two or three times the amount you initially charged. This is why it is best to transfer to cards that are offering a fixed balance transfer APR.

If you feel you need outside help, some companies offer financial counseling and assistance. They will negotiate with your creditors to lower your interest rates and your monthly payments. You will then send a payment each month to your financial counselor, and he or she will distribute it among your creditors as agreed. These programs sound good in theory, but in reality many of them are scams. Often these companies will charge you a large "donation" to help out. Sometimes the financial counselor keeps your payment rather than distributing it as promised. To avoid scams, seek financial counseling only from agencies that are government approved.

Probably the best way to get rid of credit card debt is to pay down one card at a time. Say you have five cards with monthly balances. Pick one card, the one with the highest interest rate, and concentrate on paying off that debt. Send the other four creditors the minimum monthly payment, but send every extra cent you make to the creditor you want to pay off first. You might even consider getting a part time job, having a garage sale, or selling off items on auction sites to raise money to pay off the debt. Once the first card is paid off, destroy it immediately and choose another card to pay off. Continue until you are debt free.

Credit card debt can be a real burden, but with a little planning and financial savvy, you can soon dig your way out from under.