How To Reduce Credit Card Debt
Here are a number of ways that help you reduce credit card debt and get back on financial track.
Reduce Credit Card Debt - With Credit Cards
Debt consolidation is really easy with credit cards. Simply write down the interest rates of your exisiting debts and shop around for a credit card that has the lowest interest available. To do this, visit www.cardratings.com for a full listing of credit cards that off low interest rates for balance transfers (not just purchases).
Once you've chosen a card, read the fine print. There are many hidden fees and/or surcharges out there, and it pays to be careful. We recommend calling the credit company and having a lengthy discussion with them; ask them to spell out for you the interest rate, whether it's fixed or variable, and how the interest rate changes if you are late or miss a payment. Keep in mind that any pre approved credit card offers sent in the mail do not apply to you. This is a sales pitch that increases the number of applicants a credit card company gets.
Ask the credit card rep the following questions:
What will my interest rate be, and will the rate change in the future? A favorite sales technique of credit card companies is to offer extremely low rates for the first few months, and then jack up the rate. Make sure the rep spells this out for to to avoid a nasty surprise down the line.
What will make this rate go up in the future? Most credit cards increase the interest rate if you miss a payment. A far more sneaky approach is the "universal default clause" which allows the credit card company to increase your interest rate if you miss a payment with any creditor, bounced a check with anyone or applied for a credit card with a different company. Forget this at your peril!
What is the balance transfer fee? Generally, this fee is a percentage of the transfer amount, with a ceiling of $75. If your debt isn't that high, this could be a costly added fee.
How often am I billed? Credit cards usually charge in 20 or 30 day billing cycles. Avoid the 20 day offers, as you pay more in the long run.
How do you determine my monthly payment? Credit cards with an adjusted balance or average daily balance are both good options. The two-cycle average daily balance is something to look out for.
While we don't recommend you use credit cards for purchases while in debt, if you do, be sure to check the interest rate for purchases as well.
How To Reduce Credit Card Debt - With Bank Loans
Bank loans are generally a better bet that credit cards for debt consolidation. While they offer better terms and lower interest rates, bank loans are more difficult to get. There are several ways to reduce your debt: debt consolidation loans, home equity lines of credit, and refinancing your existing mortgage to pay off debt. Let's look at each one in greater detail.
Reduce Credit Card Debts With A Debt Consolidation Loan.
There is only one reason this loan exists: to consolidate your debt into a manageable monthly payment. Depending upon your financial situation (and state laws) you might qualify for an unsecured loan. Unsecured means the debt is not backed by any collateral besides your word.
However, most banks issue debt consolidation loans which are secured by your assets such as a house, car, boat, etc. If you default on payments, the bank has the right to take your collateral. If you don't have any assets the bank can secure, you don't stand a chance qualifying for a secured loan without a cosigner - and do you really want to ask your friend or relative to get involved in your finances?
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