Ten Ways to Reduce Your Credit Card Debt

Ten Ways to Reduce Your Credit Card Debt

It seems like more and more people are paying off their credit balances these days. Do you want to be one of them? If so, here are some tips to get you started.

Reducing credit card debt is on the minds of many Americans these days. Many people are even choosing to pay down their credit card debt before paying their mortgage payment each month so they have extra credit available to them if they need it in the future. According to Equifax, one of the three main credit reporting bureaus, credit card debt has dropped by nearly eight percent in the last year alone. If you have been thinking about paying down your credit card debt, here are some steps to keep in mind.

1. Figure out how much you actually owe. The best way to start reducing your credit card debt is to make a list of the bills you owe. Gather all of your bills together and make a list of the debts you owe from smallest to largest. Make a summary sheet which lists the monthly payments, name of each creditor, overall balance, interest rates, credit limits and account numbers. This way you have all the information you need for the future payments right at your fingertips. Also, make a note about any past due payments, payment dates and so forth.

2. Be determined. Paying down your debt is not going to be easy. You did not get into debt overnight and you are not going to get out of debt overnight. In fact, it will most likely take you longer to get out of debt than it took to get into debt. Be determined to make it happen and do not get discouraged and give up or else you will always be in debt.

3. Prioritize. The first bills you should pay each month are the ones necessary to keep you healthy. This includes shelter, groceries, transportation and basic utilities. After that should come your secure loans, such as car payments. Credit cards and other unsecured debt should be last on the list for any money you have left over at the end of each month.

4. Talk to your creditors. Many people who are in debt absolutely hate talking to the people to whom they owe money. However, a simple phone call to your credit card company could result in lower interest rates and possible even waiving some late fees and penalties. The lower your rates and the more fees you get waived means that you have more money to put towards your debt. Also, if you think you may miss a payment, call your creditors beforehand to let them know. They are more willing to work with you if you tell them you may miss a payment rather than waiting until afterwards.

5. Pay more than the minimum. Minimum payments are a disaster for people trying to pay down their debt. These payments are usually between two and five percent of the overall balance and it could take several years to pay off your debt if you just do this. Of course, within that several years you are also accruing interest and more debt so it is like an endless cycle. Instead, double or triple your minimum payment whenever possible and just watch that debt melt away!

6. Work diligently on the smallest debt on your list. Many financial experts will tell you to put all of your efforts into paying off the largest debt or the one with the highest interest rate first. However, according to Dave Ramsey, paying off the smallest debt first gives you an emotional high that gets you excited and motivated to pay down the next debt. Work on the smallest debt first and then once that is paid off, apply the money from that debt to the second one. You might be paying a little bit extra in the long run, but you will be more motivated as you see debts get paid off one by one.

7. Transfer your balances. If you have a credit card with a lower interest rate than the others, consider transferring your balances to that card. This will decrease your overall costs in the long run. However, be sure to read the fine print carefully so your interest rate does not increase as soon as you transfer your balances. Some cards may even have a transfer fee so make sure you know what you are getting into when you transfer a balance.

8. Get in the habit of using cash. Studies show that consumers spend an average of 12 percent more on food and other stuff when using their credit cards instead of cash. When you use cash, there is an emotional experience as you watch your cash pass from one hand to another. As a result, you are more likely to be conscientious about the money you spend.

9. Pay on time. Late payments not only cost you extra money in penalties, they also damage your credit score and cause you to have higher interest rates on future loans and credit. Depending on your credit score, you could actually lose up to 110 points if you have a payment that is more than 30 days late.

10. Analyze your credit report regularly. Make sure you check your credit report every six months or so to see if your payments are getting reported accurately. Credit card companies may still be reporting delinquencies and other negative information if you do not stay on top of it. It is your job to ensure your credit report has accurate information so take the time to analyze it twice a year so you know you are getting the best possible rates available to you.

Editorial Disclosure: Opinions expressed here are those of the author, and have not been reviewed, approved or otherwise endorsed by any bank advertiser, card issuer, airline or hotel.

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New Rule Could Limit Fees on Credit Cards

The Federal Reserve's new credit card rule could save you hundreds or even thousands of dollars.

Does it seem like there are new regulations for credit card companies every week lately? First there was the CARD Act which went into effect on February 22. Now the Federal Reserve has unveiled some new guidelines for credit card companies regarding fees and penalties. The new rules have not gone into effect yet, but here are some things you may want to know about the pending regulations.

What Is It?
The main idea behind the new rule is to restrict a credit card company’s abilities to charge an account holder penalty fees. One of the details is that the company will not be able to charge more than the actual amount of the cardholder’s violation. For instance, if you buy a bottle of soda which costs $1.50 at your local convenience store and that puts you $1.00 over your credit limit, the card company can only charge you a $1.00 penalty fee instead of the outrageous $39 that many of them currently charge for the same violation.

The new regulations are also designed to restrict card companies from charging inactivity fees for not using the account as well as restricting multiple fees and penalties for the same violation. Card companies will also be forced to re-evaluate the rates they charge each customer every six months so they can determine if the individual customer is eligible for a lower rate. If a customer is found eligible, the company must drop their rates within the next 30 days.

Why the Need for This Rule?
The Federal Reserve felt these new regulations were necessary to add on to the recent reform that Congress passed last year. The regulations which went into effect just a couple weeks ago did not go far enough, according to some officials. The Fed’s believe that some of the charges and penalties that credit card companies charge are unreasonable and disproportionate to the violation. But Congress did not determine what was “reasonable and proportional” to the actual violations so it was up to the Federal Reserve to iron those details out.

When Does It Take Effect?
These new regulations have not gone into effect yet because the Feds want to get public opinion before actually signing them into law. The public has 30 days to offer comments before the Feds actually make a rule. The tentative date for these new regulations to go into effect is August 22, 2010.

Although I am not a fan of “big government,” I like the rule of restricting charges of nearly $40 for going over the credit limit by just a couple dollars. That couple dollars can set off a snowball of charges and penalties that could result in hundreds of dollars for a small mistake. Besides the credit card companies, I cannot think of anyone who would disagree with these new regulations.

Editorial Disclosure: Opinions expressed here are those of the author, and have not been reviewed, approved or otherwise endorsed by any bank advertiser, card issuer, airline or hotel.

Advertising Disclosure: This site may be compensated for hosting offers.

More Than Half of Credit Card Bills Paid Each Month

If you are paying your credit card balances down, join the club. More than half the people in the country are doing that for various reasons.

We have posted on here before about the fact that more and more people are paying their credit cards each month before paying their mortgage. Now, recent studies have shown that about 59 percent of Americans are paying their credit card balances in full every month. That’s a jump of about 13 percent from the previous year. The study included a sample of 150,000 consumers and was conducted by BillShrink.com, a website which offers a number of personal savings tools for people. The numbers just reinforce what the Federal Reserve has been trying to say for months.

Credit card balances dropped by 11.9 percent in December of 2009 to about $8.5 billion. That was the 15th month in a row that there was a decline in credit balances according to reports by the Federal Government.

In total, the amount of consumer debt overall in December of 2009 fell by more than $1.70 billion, which represented nearly a one percent drop. According to Peter Pham, the CEO of BillShrink, consumers learned from the recession and decided to live within their means and spend the money more wisely. Many are even creating emergency funds in case something happens so they do not have to use their credit cards. In addition to that, account holders are seeing the rise in interest rates and fees on their cards as the result of the CARD Act and they are motivated to keeping those fees and rates at a minimum. By paying down their card balances, they can help prevent incurring large fees. The legislation was signed into law by President Obama in May of 2009 and recently took effect on February 22. It includes restrictions on increasing rates retroactively while also allowing account holders to “agree” to overlimit fees by giving them the option of allowing charges to go through that would put them over the limit or asking that those charges get denied in order to avoid the extra financial burden.

Many card holders have simply stopped using their credit cards while paying down their balances. What are some of the things you are doing to avoid getting charged extra fees on your card? Have you been paying down your balances, too? Or are you making the minimum payments so your account can be in good standing in case you need emergency money later on?

Editorial Disclosure: Opinions expressed here are those of the author, and have not been reviewed, approved or otherwise endorsed by any bank advertiser, card issuer, airline or hotel.

Advertising Disclosure: This site may be compensated for hosting offers.