- Evaluate your situation and what your credit card debt problems are.
- Use a budget, and juice your budget. Stay within the guidelines for each major expense category.
- If you have a debt problem, get a credit card debt consolidation solution fast!
Tips and Advice to Manage Credit Card Debt Effectively
Credit Card Debt Tips
Credit card debt is at an all time high, with almost one trillion dollars in revolving US consumer debt and $95 billion in credit card debt charging off each year. With rising costs of living and a struggling economy, it's getting harder to get ahead and keep up... especially if you are bogged down with credit card debt. But you can find your way out of debt and a path to a healthy financial future, and Bills.com is here to help. All you need is determination and a willingness to do what it takes, combined with some tips on how to effectively manage credit card debt.
Bills.com is here to show you the way out of credit card debt. You have several options for consolidating debt, which will make it easier to manage. Consolidation isn't the only step though. You also have to find ways to reduce expenses or increase your income. We'll show you how to create a budget and then plan to get free of credit card debt.
Here are three basic tips for how to manage troubling credit card debt:
Tip #1: Use a Budget
A solid financial foundation starts with a game-plan, and in personal finance the blue-print for that plan is your monthly budget. Make sure that you know what is coming in (your income) and what is going out (your expenses) each month. And, make sure that all systems are set for a healthy budget. Fundamentally, make sure that you bring in more than you spend. If your expenses are more than your income, it is time for a change - which means finding ways to quickly juice your budget. Bills.com has a free budget guide to help you get started: Free Budget Guide.
It can vary a bit based on where you are in your life (earlier in life you will be increasing your earning potential and may have student loans or a mortgage, and later in life you might lower your income and live off of your nest-egg), but our general recommendation is to strive to save about 10% of what you bring in as income each month. Aim to keep your debt payments below 15% of your take home pay and any payments toward housing, e.g., rent or all mortgage plus taxes and fees, should typically remain below 35% of your income each month. If any of these are significantly out of whack, you should re-evaluate your budget.
Tip #2: Juice Your Budget and Increase Your Cash-flow
If your budget leaves you with an empty feeling in your stomach, it might be time to look for ways to juice your budget. There are only two things that you can change - 1. increase income, or 2. decrease expenses. Since switching jobs or finding additional income streams is usually a lengthy process we recommend starting out by decreasing expenses. The obvious places to start trimming is discretionary expenses, such as cappuccinos and movies and dinners, but there may be some big savings in areas like lowering mortgage payments with a refinance loan or bidding out for new insurance rates and coverage too. Usually, the biggest bang for your buck, though, is to get rid of credit card debt. Unsecured debts, like credit card debt, is a waste of your hard-earned dollars since it doesn't build wealth or get you anywhere (like a mortgage or student loans or business loans) and it's usually the highest cost debt you can incur.
Tip #3: Get out of Credit Card Debt, and If You Have Too Much - Find a Debt Consolidation Solution
OK, so now you have your budget, you know where you need to cut back and where you can improve - but you still have that nasty credit card debt weighing down your budget and your life. What you need to do is to find out where you stand and how you can solve that debt.
If you have problematic credit card debt, there are many different debt relief options - including credit counseling, debt settlement, bankruptcy, debt consolidation and even bankruptcy if your debt is debilitating. You can take control of your situation and get out of debt with one or more of these five options:
Bills.com has created individual solution pages within the debt portal, but here is a quick summary of each one to get you started as well.
Credit counseling is a program that enrolls you on a debt management plan (DMP) which usually allows you to qualify for a concession rate from your creditors for lower interest rates and lower payments. The plan should include reduced interest rates, lessons in budgeting and money management, or a comprehensive debt management program.
You may be able to consolidate your debts with a home equity loan, mortgage refinance or other debt consolidation loans. If you're confident that you'll be able to make the payments without building more credit card debt, debt consolidation can be an excellent way to reduce your payments and possibly reduce your taxes. You usually must be a homeowner to qualify for most debt consolidation loans. You can apply with Bills.com's approved debt consolidation lenders here: Debt Relief Quote.
Debt Negotiation or Debt Settlement
Debt settlement services offer to negotiate and settle your debts for less than you owe, many times reducing debts by as much as half. Debt settlement is an option for people who cannot afford their monthly payments, and who are not worried if their credit rating will be negatively impacted during the program. It's important to be aware that you are NOT making monthly payments and staying current on your debts while enrolled in a debt settlement program, so be aware of the credit impact and the potential collection harassment from your creditors.
Self-Help Debt Relief
The easiest debt relief options are things you can do yourself, as covered above, like budgeting and juicing your budget.
- Tracking your spending
- Checking your credit reports
- Negotiating with creditors for reductions
Track your spending - Write down every penny you spend for one month, including monthly bills, automatic payments and bank charges. If you see a lot of unnecessary expenses like $10 weekday lunches or $4 magazines bought at a newsstand, cut those expenses and use the savings to pay down your debts.
Check your credit reports - The government provides three free reports a year at Annual Credit Report and 4 out of 5 people's reports have errors. If you have errors on your report, take the steps to have them removed, because they could be damaging your credit and causing you to get higher interest rates when you apply for credit.
Negotiate with creditors - Call your creditors and ask them to reduce your interest rate in order to keep you as a customer. If you know a payment will be late or you can't pay it, call the creditor before the due date, to ask for flexibility, arrange a new payment plan, or inquire about their hardship programs.
Bankruptcy should be your last choice for getting out of debt because it will damage your credit for 7-10 years and, depending on which type of bankruptcy you file for, you could be forced to give up some of your assets or assigned a long-term payment plan. There have also been legal changes put in place by congress that makes if more challenging to qualify for a Chapter 7 Bankruptcy, forcing many people to file for a Chapter 13 Bankruptcy which is really a repayment plan.
OK, so now you are armed with the credit card debt tips and solutions to start your journey. Get on the right path and stay committed to getting rid of that nasty credit card debt and on to a bright financial future.