How Do You Pay Off High Credit Card Debt Fast? Here Is A Detailed Guide

 

For Americans facing debt problems, advertisements offering to “erase” debt or claiming to be “government credit card relief” programs are tempting in hopes that they will stop the harassing collection calls and help them get a fresh start. Unfortunately, too many of these online advertisements are scams, and some of them can actually make matters worse for consumers. Therefore, it is important to understand exactly what credit card relief programs should include, and be aware of additional programs that may come available in the upcoming year.

Credit Counseling

In many instances, a consumer may not need an extensive debt consolidation or settlement program. Many credit counselors report that consumers often believe the situation is far worse than it actually is, and many of those who feel their debt situation is overwhelming can actually manage their debt simply by restructuring their budget. Credit counselors recommend the following steps to begin working toward a debt free life:

Stop using credit cards. By not increasing debt, it is easier to begin the steps necessary to become debt free. However, experts recommend not cutting up cards or closing accounts unless you feel you cannot control your spending, as credit cards can help build credit for high cost items such as cars and mortgages.Create a detailed budget analysis. Be brutally honest when you create a budget. Use a sheet of paper or a computer spreadsheet, whichever is easier for you, and enter all your income in one column and all your expenses in another. Be sure to include everything, including periodic expenses such as car insurance, clothing and auto repairs. One way to be sure you include all expenses is to review what you have spent of the past year, using bank and credit card statements. Total the annual amount earned and spent and divide by twelve to get a monthly average. Once you have entered everything into your budget, review areas where you can reduce spending or increase income. Consider eliminating features on your cell phone, or dropping channels from your cable bill. Begin using coupons and store rewards cards to save money on groceries. If necessary, eliminate items you can live without until your debt is gone, such as gym memberships or dinners out. Be sure to include an amount for savings, even if it is only a few dollars each month.Determine how much you have left after all expenses are paid each month. This is the amount you have available to pay down your debt.Make another list that shows all credit card balances, minimum payments due and the interest rate you are paying on each. Organize the list with the highest interest card first. Begin paying the extra money you have each month on that card, while continuing to make the minimum monthly payments on the remainder. Once that card is paid in full, begin paying the extra amount, plus the minimum payment from the first card on the card with the second highest interest. Continue that process until all cards are paid in full.If possible, transfer balances on cards with high interest rates to those with lower rates to help you get out of debt even faster.For consumers who are paid bi-weekly, another option is to make payments every two weeks rather than once a month towards debt. When you are paid bi-weekly, twice each year you receive three paychecks in one month. By paying bi-weekly, you actually pay one extra monthly payment each year. Many mortgage companies will allow customers to arrange for bi-weekly payments of mortgage payments, allowing the homeowner to pay their mortgage off faster. Before beginning this payment plan, however, it is best to contact the creditor to be sure their system allows such payment processing.

Some credit card counselors recommend paying the card with the lowest balance first as some consumers are motivated when they see an account paid in full. If this works better for you, it is fine to use that process, but it will cost more in interest over time.

Debt Consolidation Services

For those who create an honest budget and learn that there is no money left over at the end of the month even after trimming expenses as much as possible, debt consolidation services may be the answer. In debt consolidation, a credit counselor works with creditors for a lower interest rate, creating a repayment plan that is more manageable. Debt is consolidated into one monthly payment that is normally lower than the monthly amount the consumer was paying to each individual creditor. Creditors do report to credit reporting agencies that the consumer is working with a credit counseling agency, which can temporarily lower credit ratings, but not as much as defaulting on a credit account will harm scores.

Debt Settlement Services

When a consumer cannot even afford a debt consolidation plan, or whose accounts are already in collection status, another option is debt settlement. In this option, a qualified debt settlement negotiator works with one credit company at a time, negotiating lower interest rates and balances owed. While the counselor negotiates, no payments are made directly to creditors. Instead, the consumer pays one monthly payment into a trust account until the creditor and the debtor agree to a settlement. Once the agreement is approved by both, the creditor is paid from the trust account, and the balance is considered paid. Debt settlement can initially lower a credit score, but has less of an impact on scores than bankruptcy.

After a consumer participates in either debt consolidation or debt settlement, there are programs available to help rebuild credit through most credit counseling companies. Before choosing a credit counseling program, be sure they are in good standing with the Better Business Bureau and have been in business more than a few years.

  Paul Paquin is the President at Golden Financial Services; an A+ rated Debt Relief Company.  Paul participates as an author in the Golden Financial Services debt relief blog, and on other various financial websites, working hard to provide consumers with the most current financial education and resources.