Credit Card Debt Reduction Strategy

Are you someone who hides from your credit card bills each month? Do you even know how much you your total debt is? You don't have to be afraid of it; with planning, you can tackle any size debt and pay off those cards!

The first step is the hardest. You need to sit down with all of your statements and tally up your debts. Next, take a sheet of paper and list each credit card balance, credit card interest rate, minimum payment and balance owed. If your credit is good, contact the credit card companies and ask them if you can have a lower interest rate. Tell them you are going to switch cards if you don't get a lower rate. Getting the lowest rate possible gives you the greatest chance at paying them down quickly.

If at all possible, get a 0% interest rate card to transfer balances with. However, do your homework. Don't get a card that has a high fee for balance transfers, as that can negate your interest savings. Also check to see how long the 0% is good for. Sometimes that is an introductory rate that only lasts 3 or 4 months. You want 0% for at least a year. And make sure that the rate the card will revert to after the introductory period is lower than the cards you are transferring from. In case you should happen to miss a payment, your account will automatically revert to the standard rate, so get it as low as possible.

After you have tried to get lower rates, then you will put the cards in order of credit card interest rate, with the highest interest rate being at the top of the list. This will be the order of payment you will be working on.

Pay the minimum payment on all the other cards for now. Then pay at least $10 over the minimum payment on the card with the highest interest rate. And much more if you can afford to. Why do this? Compound interest! This is how credit card companies make a lot of their money. As your balance drops, your minimum payment drops. And interest compounds monthly based on your balance - which includes the interest your account already accrued! So you are paying interest upon interest repeatedly. That's why it seems to take forever to get out of credit card debt. For example, if you have a credit card at 15% interest with a $3000 balance, making only the minimum payment each month will take you 216 months to pay off. And you will have accrued $2757 in interest charges. That is almost double the original purchase price!

Once you have the first card paid off, take the full amount that you were paying each month for that card and add that to your payment for the card with the second highest interest rate, while still paying the minimum payment on the other cards.

Do this with each subsequent card. You will find that as you proceed this way, the cards will be paid off faster and faster. The reason is the lower interest rates on the other cards and the fact that your payment itself will be larger and larger. Once you have your debt paid off, close all but one or two cards for emergency purposes only and revel in the feeling of being debt free!

Managing Multiple Credit Cards

If you are struggling with credit cards and are trying to figure out how to manage them without declaring bankruptcy, then you need to read this. Americans are finding themselves with increasing numbers of credit cards. There are some strategies to living without credit cards forever.

Credit card debt accumulates interest faster than any other type of loan. At 20% and sometimes higher, Americans lose thousands paying off credit cards. The first thing to do is to decrease how much you put on them every month. Get to a point where you do not even use your credit cards any more. This may take a while and it will require working out a budget and getting on the straight and narrow. Perhaps selling a new vehicle for a used one or if you need a drastic solution, you may be forced to live with relatives and liquidate your assets in order to prevent a bankruptcy. Please see your financial advisor or a wise relative.

Once you have weaned yourself off the credit cards, determine how much you can pay off each month and find more ways to increase that amount every month. If your first impression is to pay off the cards with the lowest balance, please think again. It would be nice to pay off that one card with only a few hundred on it but your problem is interest. It is costing you a lot of money. Figure out how much you could be paying your balance down if ALL or none of your money went towards interest. You could crawl out of this financial hole much faster if that was the case. Find the credit card that has the highest interest rate and pay that off first. Pay the minimums on everything else until that balance is zero. Do not stop until it is zero or another card's interest rate climbs to become the highest.

Once a credit card is paid off, cut it up and throw it away. Plan to throw away all of your cards but one. Find one card that you have had the longest and keep that one. Even if it is not the lowest interest rate, your plan is to never pay interest again so that does not matter. By keeping the credit card with the most history, your credit score will take account of your long history with the same card and your it will increase faster than with a brand new card with little history.

A popular solution is to transfer credit card balances to a 0% credit card. That interest rate will expire but it does prevent interest from building up. This method would force you to open many accounts and keep opening and closing credit cards in order to escape paying interest. This may work however, your credit score will drop to reflect this behavior. If that credit score drops and you apply for a home mortgage, the interest rate will be higher. One way or another you will pay interest, I suggest not opening new accounts and transferring balance since it only benefits you in the long run and you need a permanent fix.

It may sound simple but it will take patience. Look at the problem at a weekly or monthly and make small steps. If you are late on credit card payments, talk to the lenders and tell them your plan. If you communicate with them, you can manage this debt much easier. If they know you have a plan, they can rest easier. Of course, you still need repay it but if lenders have no idea what is going on, than they will be forced to act and really put you in a bind.

Credit Cards Are A False Sense Of Buying Power

The plastic power is all too common now days. We almost live in a cashless society paying for everything either with a debit card or in most cases a credit card. Credit cards have many conveniences, almost too many and some drawbacks. Before you sign up for another card, let's take a look at the pluses and minuses to see if the rewards outweigh the risks.

Credit cards are, first off, a great way for everyone to build credit. Establishing credit will secure a high FICO score or credit rating. This credit rating is crucial to maintain. Everything is being tied back to your credit score so it is important to start as soon as possible. Building credit will allow you to make purchases for the lowest interest rate possible, along with many other advantages.

What most people may not realize is that every time you use a credit card you are taking out a small loan. Getting loans from a bank or other financial institutions take time, but a credit card is instantaneous and can be used anywhere around the globe. For this convenience, they charge a 20% or so interest rate. Your new card may start with a low interest rate but it will jump up much higher. The ease of buying with credit cards gives a false impression that that money is ours. The reality of credit cards is that you are spending someone else's money. They will charge you a high return for using that money too. Imagine you making 20% a year on your investments. Everyone would jump on board that program but instead we are on the other side of the fence, paying someone 20% interest instead. If you pay off the card every month, you do not have to worry about paying interest but most people just pay somewhere between the minimum and the entire balance every month.

Some people have more than one credit card. Having more than one card will not build your FICO score faster; it will at some point bring it down. You only need one card to start establishing credit, having three or five only brings that number down and works against you. Having several cards will raise your possible debt and your credit score will reflect it AS debt.

Many retailers offer credit cards to use in their store and perhaps elsewhere. Anytime you make a large purchase or open up a line of credit, they mail you a credit card to your house within weeks. These cards usually have some open credit available to make more purchases. This is only a trap to buy more and open up more accounts. The reason most people have a credit card is because they do not have the money to pay for something. So opening more and more cards only adds to that problem. A word of advice is never open up a credit card account no matter how good of a deal you think it is. It is only a good deal for the retailer; if it were not a good deal for them then they would not offer credit cards. It would certainly be a bad business decision.

Credit cards give us a false sense of how much money we really have. If you pay off all of you credit cards every month that is one thing but many people have cards maxed out. If you are using a credit card, to begin with then assume you cannot afford it. Remember you are taking out a loan and spending money you have not made yet. Beware of the plastic power because it is easy to forget how much you have spent, until the bank starts calling you every month.

Credit Card Basics

Credit cards are very helpful when it comes to devolving and building credit. Nonetheless these small pieces of plastic can be very dangerous in the wrong hands. Credit is important because some of the most expensive things you will ever buy are determined by your credit score. Some only consider home and vehicle financing, but there are plenty of other entities to consider. Today is the time to start focusing on your credit whether you are trying to build or repair.

There are many things to consider when deciding upon applying for a card. First of all there are two different types, secured and unsecured. A secured card is secured by deposits to your issuing bank. To use one of these a deposit must be made from $50 or higher. After you have made a deposit then a credit line up to 100% of your deposit will be issued. In other words you can only spend what you deposit and in some cases not even 100%. Unsecured cards are the ones you may be familiar with and they are the complete opposite. These are initially issued with a set credit line that may be used once the account is activated.

Understanding the different terms associated with these cards will determine how well you manage your credit in the future. Terms such as; APR and finance charge are very important to the charges on an account. APR which is short for annual percentage rate is a yearly rate of interest that has fees that apply to your loan. APRs are different based upon issuer's and credit. You want good credit to be able to get a loan on a home, but you also need it for a good rate on a credit card. Finance charges are comprised of fees and other charges.

If a user does not carry a balance then the card issuer offers a grace period. A grace period is interest free and is the time between the billing and transaction date. If a balance is carried then there will be no grace period. Minimum payment is the minimum amount that has to be paid to have a current account. Not paying the minimum can cause your account to go into default and extra fees may be applied to your account. It is always best to pay extra then your minimum payment every month.

There are late fees and over the limit fees which apply to every account. Late fees are accrued when you pay after your due date and can range from $20 up. Over the limit fees apply when your account balance goes over your credit limit. These fees are at average $35. Make sure to pay your bill on time and to stay below your limit. In other words always steer clear of these fees.

Credit can be a blessing and can be a curse. Knowing what everything means beforehand will save you a lot of money in the long run. Stay away from high APRs and finance charges. Pay all bills on time and pay more than the minimum. Appreciate credit while staying away from all of the red signs.

Avoid Credit Card Debt

Today people think that they must have everything they desire immediately. This perceived need for immediate gratification is fostered by advertisers, retailers, banks and others with a vested interest in pushing the consumerism barrow and to most people it represents the golden way of capitalism and is therefore to be at least encouraged, if not worshipped.

As a result, credit cards have become a major instrument in household financing. Although not wishing to dampen the spirit of capitalism and the consumer society, as I see it, for many struggling families the availability of unsecured credit is more of a hindrance than a help. Yes the convenience of instant money fits so well with the must-have-it-now society, that it is just too easy to buy first and think about affordability later. And that is precisely where many people come unstuck. Firstly, using your plastic is usually the easiest way of getting goods on unsecured credit. That means that no collateral is needed to get your money to buy. The goods cannot be handed back to the bank if you find yourself unable to pay pack This is unlike chasing a bank loan or hire-purchase where physical goods, a car or a house is mortgaged and can be sold by the lender if the loan is not paid. With unsecured credit the card company will charge interest and fees on the outstanding amount, commonly at much higher rates than the federal reserve's declared rate, until the outstanding amounts are paid or the customer goes into bankruptcy.

For many average and even 'wealthy' householders, the availability of credit cards has meant ever increasing debt, hardship and bankruptcy in many cases. The demand for credit has never been stronger, but the supply is overwhelming. How many banks and stores have you seen offering yet another card or luring you into churning from one card to another or more commonly extending your credit with increased limits making it easier for you to spend more and more money you do not have.

The burning drive for credit has been fueled as we have said, by the growing consumer society. It seems we can no longer be satisfied with last season's clothing, and your car and PC from a few years ago no longer has all the latest features or it lacks sufficient 'grunt' to enable you to do the work you bought it for. And your kids must have the latest X-Box or PlayStation because the technology has moved along and the graphics are better in the new one. Well if you have been around for more than five minutes, you will realise that if you want to be always at the cutting edge of technical innovation, you will be trading up or acquiring new gadgets every other month! And that my friend is financially irresponsible.

I read somewhere recently that the average credit card holder is spending ten to twenty years paying off credit card debt, on basic monthly payments, that they procured in their twenties! We can only hope that their spending was for long lasting items - but most likely the goods have long since been disposed of, the sumptuous wedding or vacation only a vague memory. And another statistic worth mentioning is that the average U.S. college graduate begins his or her post-college days with more than $2,000 in credit card debt.

Where I come from, interest rates on plastic cards can vary between about 11% (with annual fee of $50) to around 17.5% with no fees, no frills. Off the top of your head, how long will it take our average student with a $2000 debt to clear it at 12% interest, no fees and minimum repayment of only $40 a month? How does 6 years sound? Frightening isn't it!

But credit cards are not all bad, especially if you educate yourself as to what and when you will be charged and evaluate what you are buying (as distinct from what you are spending) and how long it will take to pay it off. By embarking on a long term credit card debt for something that will grow in wealth over time, i.e. an investment such as a collectable, artwork etc., you are effectively investing by using other people's money and as such could be considered an effective strategy. But you would want to hope that the growth in value of your investment outstrips the cost of the money - i.e the interest on the repayments. Will that painting have a growth of 15% a year? What about shares? You see there is always a risk that you may end up paying too much. The wise use of instant credit is in a situation where you know that you have the cash invested somewhere to cover the purchase, and you use your card to snap up the bargain and then clear the CC debt once you redeem your cash.

Recently, an internet marketer wanted me to purchase his wealth-making strategy using a credit card, arguing that the cash I would make with his system would easily cover the charges on the card and I would back in the black in a few months. Yes you are borrowing from the bank, using other people's money, which is considered a good strategy for acquiring assets, but if you are using money you do not have for something that is unproven, that is a potential liability then this must be considered a risky strategy. By the way, we are still waiting for his gambling system to make any money.

Purchases on a whim, or because your stuff is 'outdated' is a classic way many people build up credit card debt for things that are non-essential. The wiser consumer keeps a balance between the things they 'need' and the things they 'desire' Needs are those essentials like rent, food, new tyres for the car. That weekend vacation, computer upgrade or TV are luxuries if you have not saved the money. Credit card spending on either type of purchase should be avoided, but if credit is needed, opting for new tyres is the safer option. Saving is largely unknown to our consumer generation. When my parents wanted a holiday, new refrigerator or entertainment, they put money aside from their fortnightly wage packet in an interest bearing account and paid cash for everything except houses or cars. But this took time, effort and consistency. Far easier to spend all your pay and borrow for all you 'need' right now! But although we cannot dwell in the past, there are some practical rules we can take from the past. Placing purchases on credit cards should never be entered into lightly because you really need to consider if you absolutely need the item. More importantly, paying off a vacation or a new article of clothing ten years down the track seems a little stupid. By the time you have these things paid off, they will be forgotten and discarded.

To re-emphasise, weigh the need and desire for purchases seriously, calculate the interest that you will pay, and the amount of enjoyment or productivity that you will derive from them. Car tyres—those are a must have purchase, and putting them on your credit card is not a major financial commitment. Well, that is unless you are putting the tyres on your credit card so that you can use your cash for an upgraded car stereo. This choice falls into the financially foolish category because using credit for a necessity tires so that you can make a luxury purchase is the equivalent of putting the luxury item on the credit card. Ask some questions: Is it a need or a desire? What is the real, total cost of the item, including interest? How long will it take to save for the item, putting the repayment amount into an interest bearing account? For example, I deposit regularly into an account online with a major international financial group paying around 6% pa interest. Not a lot, but with compounding I can hit my savings targets quicker than keeping cash in my wallet or borrowing on credit and as long as I am earning at a greater rate than inflation, my wealth is growing which is a better feeling than being in debt.

Getting A Credit Card

Today the use of credit and debit cards for everyday purchases is becoming more and more common. Paying with credit or debit card is almost required for making purchases online, which is gaining popularity. People with poor credit may find it difficult to be approved for a card, but there are ways these individuals can enjoy the convenience of having a credit card.

Getting a card for those with average to good credit is usually very simple. Credit card companies are constantly sending offers and advertising their cards. They offer a number of incentives such as giving a certain percentage of all purchases (usually 1-2%) back to the card holder, or low interest rates. The customer simply has to select which card they like best based on its features and submit an application to receive the card. Depending on the company and card involved, customers can be approved instantly and receive their card week or two. The card holder then is free to make purchases with credit, and incurs no fees if their balance is paid within the month. However, expect to pay a huge amount of interest if the balance is not paid, this is where card companies make money.

Heavily advertised cards that most people see on TV with attractive offers are often challenging for people who do not earn very much or have some credit problems to get. However, it is still possible for these people to get credit from these companies through the use of Risk Based Pricing, where the company offers credit at a higher interest rate to offset the risk of loaning the money. Those with low credit scores may not be able to receive the advertised card, but they can get a similar one with different rates.

While those with only minor problems with their credit report may be able to get traditional cards with raised interest rates, people with severe credit problems must find alternatives. Some companies offer beginner cards for those with bad or no credit history. These cards have very low spending limits and high interest rates when compared to most cards, but they do offer a way for people to get their first credit card. These cards can then be used to build a credit score which allows the user to get a better card in the future.

People who have severe debt or have previously declared bankruptcy may not even be able to get a starter credit card. The only option for these individuals is a prepaid card. Prepaid cards, also known as secured cards, work much like debit cards. The cardholder funds the account with money they already have, and they cannot spend more money than they have, preventing them from going further in debt. Since there is no risk to the issuer of the card, nearly everyone can be accepted, but expect to pay large fees for one, such as a percentage of all purchases or a signup fee, so it is important to check all the details before obtaining a secured credit card.

Credit Cards – How Many Is Too Many?

Have you ever stopped lately and took a look at how many different credit cards you’re currently carrying? If you’re like the average person, I’ll bet it’s too many. So how many credit cards are too many? Can it really have a negative effect on my credit report? Let’s take a quick look.

It is so easy to get a credit card these days. We are constantly being bombarded with offers in our mailbox. It almost becomes a habit to fill out the pre-approved application and send it in. The next thing we know we have yet another credit card. This is why the average American has 5-10 credit cards.

Did you know that having too many credit cards can actually hurt your credit score? This is even more so if you have a large amount of unused credit on them! So, how many credit cards should you really carry?

To be honest, there is no exact figure to go by. Rather, it is about your balances. We will get into more on that later. Credit companies will look at the number of credit cards you have in determining your credit risk. If you have a high number of cards, you can be considered a high risk, even if you’re not using the cards. Why? Because it’s possible for you to suddenly rack up a lot of debt on these credit cards and not be able to pay it back off.

Having department store credit cards can also be a negative factor in your credit score. Some experts say that every store card will automatically deduct 20 points off your score.

Most everyone only needs 2-3 credit cards at any one time. Perhaps one of them being a store credit card that you shop at all the time, and the others being Visa, MasterCard, American Express, or Discover.

Another important aspect to keep in mind is your debt ratio. You always want to strive to maintain your credit card debt ratio under 50%. If a creditor sees that your credit cards are maxed out, you will appear to be someone who can’t pay off their debts. Try to hold only a few credit cards and keep the balances low. Some experts will even tell you that if you can’t maintain a zero balance on your credit cards, then you have too many.

Having long established credit accounts are better than having newer ones. So, if you are trimming back on the number of credit cards you hold, try to hang on to the ones that you’ve had the longest.

Credit cards are nice to use in making larger purchases than using cash. You will have protection in case of a return. They also help against fraud by giving you the protection that you need. But, you need to be careful with credit cards. It is often said that having too much of anything in life can be bad for you, and having too many credit cards is the same thing. Opening up lots of new credit accounts will not help your credit rating, it will only harm it in the long run. The key point in all of this is to carry only a few credit cards and keep your balances as low as possible.