Debt Relief Programs – 5 “obvious” ways to cut debt
If your credit card balance has ballooned to a size that makes you scared to open your statements, you really need to start trimming down that debt… Most cards carry interest rates, when compared to other types of financing are considered extremely high. Rates can even adjust after a promotional period and send your balance through the roof.
So, if your credit card balance is out of control and you’re struggling to get those bills paid, what steps are you supposed to take?
To get rid of the debt you need to get educated quick, and the internet is a decent place to start. There is a wealth of information out there, but to be honest, most of it is garbage intended to persuade you to sign up for debt services. You need to be able to separate the sales pitches from the helpful goodies and figure out a plan to remove yourself from the depths of the debt hole you’ve dug. Here are some simple ways that you can reverse bad spending habits and get on track to recovery…
Avoid the credit trap, switch to a debit card
The quickest way to keep from being bogged down by more credit card debt, is to completely stop using credit cards. It’s alot easier than you might think… With bank issued debit cards and secured credit cards available, you really don’t need an unsecured card in 2010. All you need is the convenience factor of paying with plastic and a debit card can provide you with that. Debit cards are being used more and more every day in place of a charge card. In 2008, charges on debit cards trumped credit card charges for the first time ever. They are readily accepted and are perfect if you don’t trust yourself with credit. Fraud protection and charge disputes may not be quite as good as a credit card, just avoid very high risk purchases (like internet purchases). Debit cards offer 0% liability to the consumer in case of suspected fraud, which means you will never be on the hook for fraud. The only problem is if your cash reserve is low, you could be wiped out until the problem is resolved. This might take 2 – 3 weeks. There is usually a low daily spending limit on debit transactions, so a large amount of fraudulent purchases is unlikely to go on without notice.
Transfer Multiple Debts onto 1 Low Interest Card
If you have multiple credit cards you might transfer the balances (or at least some of the balance) onto a lower interest credit card. You can either choose to transfer to a low interest promo card with 0% transfer fees (that will adjust in 6 months to a year), or use a fixed low interest card with some balance transfer fees. If you transfer to a low fixed interest card, the fees end up being around 2-3% of the balance. This is the safest option. But, if you do not want to play it safe, you can often find 6 month promo deals with APR’s in the single digits. These promo cards have extremely low interest, but will adjust up to a higher interest rate after a set amount of time (usually 6 months to a year). If you plan to pay this debt off quickly, a low APR promo card might be a good move for you. If you can’t pay it off in time, you can still transfer to another 0% balance transfer promo card, before the intro rate expires. This can be a tricky maneuver, so if you don’t completely understand, be safe and stick with the fixed rate cards. Just make sure that the APR won’t adjust higher than the rate you currently have.
Just ask for a lower interest rate
Flip over your credit card and find the 1-800 customer service number on the back. Tell the person you want to ask about an interest rate reduction, they should direct you to the right person. I read recently that 50% of people who just called to ask for a rate reduction got one right away. It is possible to get rejected, but for 3 minutes of phone time it really can’t hurt. I’ve even heard of customers getting reductions to 1/3 of their old rate. Now, this is unlikely, but these companies have very high revenues and can afford to work with you. If you honestly explain your situation, while establishing good rapport with the person on the other line, you could make a big stride in fixing your debt. You should be nice, but agressive in the terms that you ask for. If you are paying 15% and want to pay 12.5%, you should ask for 10% and then meet in the middle. That’s negotiation 101. Even if they don’t accept your proposal, wait a couple days and call again. A different person on a different day might do the trick.
Work with your credit card company
The economy is chugging along at a slow pace right now and people from all economic backgrounds are having trouble. People in the upper, middle, or lower economic levels are having a harder time paying bills. I personally think that makes it a great time to ask to for a balance reduction and settle the debt yourself. If you call and make a proposal for a reduction, the person on the other line has the ability to cut a deal. But whether they do or not depends alot on your unique situation. There is really no incentive for them to work a deal if you’ve been making payments on time (definitely do not stop paying your bills to get a deal!). But, if you haven’t made payments for 3-6 months or more, they might be more inclined to give you some leeway. If can present a plan, where you come up with consistent payments of a specific amount, and prove you can pay it, they might agree to a reduction. Also if you can offer a lump sum of cash, in exchange for settling the debt, they might bite. But the question is if you are behind on your bills, where are you going to get a lump sum of cash? This is where a low interest home equity loan or debt consolidation loan might help.
Getting a low interest loan to pay of high interest debt
This is how debt consolidation works. A debt company will give you a long term, low interest loan to pay off you high interest credit card debt. You are basically trading one type of debt for another. This can be a good decision or it can cause problems, it depends on your ability to pay this long term loan. If you think you are in a temporary rut that you will be able to overcome, this might be a good option. But if you think you there might be a tough road ahead, this might add to your troubles. The main problem with getting a home equity loan or a debt consolidation loan is that you are going to have to put up some collateral, MOST LIKELY YOUR HOUSE. So this is only something you should do if you know you will be able to keep up with those payments over a 15-30 year period. The monthly payments will be much lower interest (up to 1/3), but the length of time you will have to make them will be a much greater length.
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