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A friend I’ll call John was a very successful real estate salesman. However, when the real estate market tanked in 2007 so did his finances. He started leaning more and more on credit cards and almost before he knew it had $50,000 in debts. If this has happened to you – if you’ve found yourself so heavily in debt – there are six proven strategies for getting rid of those credit card debts.
1. Choose consumer credit counseling
Is there a consumer credit counseling agency in your area? If not, it’s easy to find one online. Whether you go online or to a local agency, you’ll have a debt counselor who will help you restructure your finances and develop a debt management plan (DMP) that should enable you to become debt free in about five years.
2. Get a debt consolidation loan
This is probably the fastest way to get out of credit card debt because all that’s required is to get a new, bigger loan to pay off all your credit cards. These loans come in two types – secured and unsecured. If you’re really in debt like my friend John you will probably be required to get a secured loan. This is one where you use an asset like your house as collateral to “secure” it. If you’re not so heavily in debt, you may be able to get an unsecured loan or one that requires no collateral.
3. “Snowball” your credit card debts
“Snowballing” credit card debt is a strategy that has been used successfully by many people. What this requires is that you put your credit card debts in order from the one with the highest balance down to the one with the lowest. You then do everything possible to pay down the card with the biggest balance, while still making the minimum monthly payments on the other cards. Once you pay off the card with the biggest balance, you use the money that is now available and get to work paying off the card with the second biggest balance and so on. People who have used this strategy have been able to pay off even large amounts of debt in as few as 18 months.
4. Borrow from yourself
If you have a 401(k) retirement plan or an IRA you may be able to borrow from it. This can be the best kind of loan because you literally pay interest to yourself. Most 401(k)s allow participants to borrow up to $50,000 or half of what they have in their plan, whichever is less. While a 401(k) lets you take up to five years to pay back the money, you must pay back whatever amount you borrowed from an IRA in 60 days.
5. Earn more money
If you could get a second job, additional shifts on your current job or some type of part-time work, you could use the money to pay off your credit card debts. I know that working an extra job isn’t much fun but can be a very fast way to get rid of those debts.
6. Negotiate settlements
A not-so-well-known fact about credit card companies is that they will settle debts for less than what’s owed. However, they usually won’t consider settlement until you’ve failed to make even your minimum monthly payments for at least six months. You need to be a good negotiator and must have the cash in hand to pay off any settlements you negotiate. In other words, if you were able to negotiate a credit card debt of $5000 down to $2500, you would need to have the $2500 in cash ready to send off to the credit card company. If you don’t have the cash available to immediately pay the settlement, the credit card company would have practically no incentive to settle with you.
