Step one involves creating a realistic monthly budget, with "realistic" being the keyword, because just like a diet, if you can't maintain it, then it's not only worthless, but it can in fact be damaging.
Before we get underway, you'll need are your last 3 months of bank statements and if you don't have them, you should be able to download them, or get them from your bank within a day or two.
Now that you have the three bank statements, make a list of all your expenses, and I mean all of them.
When you've done that, I want you to divide them into three separate categories. The first one is for your fixed monthly payments, which will include things such as your mortgage or rent, a car payment, and maybe your phone and TV payments. The second category is for monthly payments that vary, and it should include such things as, groceries, gas, electricity, vehicle maintenance, and perhaps home repair. The third category should contain items over which you hopefully have much more control, like, eating out, entertainment, impulse shopping, and everything else that doesn't fit into either of the first two categories.
Now make a list of any income that you have regardless of whether it's salary, welfare, stocks and shares, or a rental property etc.
You've more than likely guessed the next step, which is to compare your total expenses, to your total net income.
If your expenses are more than your income, then you'll obviously have to look at the third category and decide how to cut back on some of the items that are in it.
If after reducing the amounts in the third category, your expenses still exceed your income then it's high time to consider making serious changes to your lifestyle, because if you don't then you're going to get deeper into debt every month, and no amount of reading or effort will help you until you make those changes.
With any luck your income is more than your expenditure, and if it is then we can begin to reduce your credit card debt, and the first real decision you'll have to make, is how much more you're ready to add your monthly credit card payments.
The bigger the payments the better, and here's why.
If your balance is $10,000 and you pay the present minimum repayment of $200 per month, then based on an APR of 15% it will take you 6 years and 7 months to pay off the card, and you'll have paid $5,791.21 in interest. If you'd paid $300 per month instead, it would have taken three years and eight months to pay off, and you'd have paid $3,017.07 in interest.
If you have several credit cards, which is likely, then the next step is to consolidate all your credit cards, so that you'll only have one or two of them to make payments on, and those payments will only be on cards that have the lowest interest rates.
Deciding which credit cards to keep and which ones to get rid of is not as simple as you might think because the differences between APR and EAR make figuring out the actual interest rate fairly complicated.
If we assume a stable balance, and all other conditions remain the same, an APR of 12.99 percent over the course of a year's worth of compound interest is the same as an EAR of 13.79 percent which might not seem like a lot, but if your balance is a large one, or if the repayment time will be lengthy, then the difference will be significant.
It's easy to find a 'Credit Card Repayment Calculator' on the web, and if some of your card companies use EAR and others use APR, then simply use one of the calculators to figure out which cards are costing you more, and don't forget to take into account the annual cost of the card.
It's almost certain that you receive offers from rival credit card companies several times a year that ask you to transfer your balances from other cards to them, and they almost always offer you several months of a low or even zero percent interest, and it's very important that you take advantage of these offers. The transfer process is simple, and it can be done with checks that are supplied by the company, or online, and you should do it every time the period of low or free interest is close to expiring.
At the time of writing this article, lots of credit card companies are doubling the minimum monthly payments, and while it will make it difficult for many people to make them, it will of course benefit them, if it doesn't completely ruin their lives first. The problem with the credit card companies enforcing the change, is that it will force people to make much higher payments than they'd anticipated, which is a far cry from the planned method that is suggested here, and one which is still entirely valid.
So if you're really determined to get rid of your credit card debt, create your budget; cut down on the number of cards that you have to the lowest number that's possible; decide how much you're going to add to the minimum monthly payments; and then smile as you watch your balances come down quickly.
You may have been told that debt consolidation loans are a cure all for all debt problems. You may have been led to believe that taking out a single loan to pay off all of your debt is the answer. This is not always the case, however, because not all lenders have your best interest in mind. There are many things that you can do to help consolidate bills, and many different steps to take. If you currently own a home, and there is some equity in it that you can use, there are actually several low-cost options for you to consider, that are straightforward such as a simple debt consolidation loan.
1. You can take out a home equity loan. These home equity loans have the advantage of carrying interest rates which are relatively low, and the interest that you do pay on a home equity loan is actually tax deductible. A fixed rate loan, for example, generally carries a term of around 15 years, and will require an origination fee, an appraisal fee and a title insurance fee.
2. You can complete a "cash out" refinancing. This is another option for people who have some equity in their home. What you do, is you refinance your property for an amount which is greater than what you owe, then you use the extra cash that you have earned in order to consolidate bills. By using this method, you actually manage to obtain a very low interest rate, but in the process you are stretching your monthly payments out over a span of between fifteen and thirty years depending on the terms of your individual mortgage loan. This is really a one time ever option, however, because the interest cost really tends to add up over the years making it an expensive option over time.
3. You can refinance your vehicle. Any secured loan can be borrowed against, and this includes your vehicle. The biggest danger associated with this form of debt consolidation is that you may actually run out of car, before you end up running out of debt. When you owe more than what your car is worth, it is generally pretty tough to buy a new one.
4. You can obtain a personal loan. If your credit is reasonably undamaged, you may be able to qualify for a loan, which is unsecured. You will generally find lower interest rates at credit unions than what you will find at banks, but you should still expect an interest rate of at least 11 percent or more. Still, this can be a lot less than the 20-or-so percent that you are paying to your current credit card companies.
5. You can negotiate better terms. This is something that you can easily do for yourself, simply by calling your credit card issuers, and asking them to help you negotiate a better term. Many regular customer service operators are authorized to do what it takes to reduce your rates right there while you are on the phone with them.
6. You can seek other alternatives. There are a lot of people out there who would love to help you, including organizations like the National Foundation for Credit Counseling, also known as the NFCC. The NFCC has branches located all over the country. The NFCC is a not for profit organization which provides debt management advice which is free, confidential, and available to anyone in the country who needs it. It is even possible to consult with someone at NFCC over the phone. The actual creditors pay these debt consolidators, like NFCC,, which means that it is in their best interest to help you work out a plan for repayment, rather than advising you to take other options such as declaring bankruptcy. In certain cases, bankruptcy might be your best option, but it is by far not your only option.
You have many different options available to you to consolidate bills and put control back into your finances. Don't let your credit card debt affect you any longer. A debt consolidation loan will make your monthly payments manageable and help provide the financial stability you need for your family.
Both Michael Redbourn & Thomas Erikson are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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