Understanding Credit Card Debt Elimination

Credit card debt elimination is one of the foremost goals of people in a financial crisis. Debt in the country remains to be a big problem and that is made evident by the report released by the New York Federal Reserve last May 2013. Although the Quarterly Report on Household Debt and Credit provided us with specific data that indicates a decline in debt, the figures are still too big for us to be complacent. Based on the report:

• Overall consumer debt decreased by $110 billion in the first quarter of 2013.

• Total consumer debt as of the end of March 2013 is $11.3 trillion.

• Debt in the end of the first quarter of 2013 is 1% lower than the fourth quarter of 2012.

• Mortgages continue to lead the debt race at $7.93 trillion.

• Student and auto loans increase by $20 billion and $11 billion respectively.

• Credit card debt and other personal loans decline by $19 billion and $10 billion respectively.

Of all these debts, credit cards continue to be the most unnecessary debt that Americans are burdened with. Unlike mortgages, student debt and auto loans, these cards rarely contribute to the growth of a consumer’s personal net worth. Not only that, the high interest rate and other charges that banks and credit card companies impose on monthly balances can accumulate really fast. These make credit card debt one of the most destructive debts that the average consumer owe today.

Understanding credit card debt

Credit card debt, although it is not the highest balance that you may owe should be given adequate attention for its potential to destroy a person’s financial stability. Of all the other debts, this is the one that you can live without. It fact, we can be as bold to say that you are better off without this type of debt.

Eliminating credit card debt, if you already accumulated one, is important but you have to understand the factors that led to it first. At the very least, it will give you the motivation to stay away from falling into this debt again.

If you think about it, credit card debt is destructive because:

It promotes unnecessary spending.

Paying in cash is more difficult mentally and emotionally because you see the actual money being taken from you. This is not true for credit card purchases. The convenience of not carrying cash comes at a price in the form of your inability to realize just how much you are really spending.

It encourages spending beyond one’s means.

When you use credit cards, you are encouraged to rely on a future income that is not yet in your possession. The things you purchase with your cards is not really your money – you are borrowing it from the credit card company. You have to pay it back at the cost of an interest rate and other finance charges.

There are too many add ons to the original debt.

In most cases, people with credit card debt payoff more than what they really spent. The high interest rate, annual fees, late penalty charges (if any) and other finance costs are added to the monthly payment requirement of the card holder. All of these are a waste of money and if you make a habit of being late on payments, you will just make your creditors rich at the expense of your own hard earned money.

How to select a debt solution for credit cards

One thing’s for sure, credit card debt elimination is a must for you to be able to maximize the rewards of your income. Fortunately, there are various programs to help you get out of this credit obligation. You just have to consider your financial capabilities to pay off the debt before you can choose the right debt relief program.

If you can afford to pay the more than the minimum of your credit card debt…

…you can use the Snowball Method. This program requires you to rank your credit card accounts based on priority. You have two options in prioritization. The first is to rank based on which card has the highest interest. The other option is to rank based on the card that has the lowest balance. Once the ranking is done, you will distribute your debt payment fund to each of the debts – making sure that the minimum payments are met. Any extra from the fund will be placed in the priority debt. Once that first debt is paid, the amount allocated for that debt will be added to the second debt in the priority list. When that is paid off, the original amount from the firsts and second debt will be put into the third debt in the list. This will go on until all the debts are paid off.

If you can afford to pay the minimum or you only have a slight deficit…

…you can use debt consolidation. This method will help you through a restructured single payment plan that will allow you to pay a lower monthly payment over a longer period. There are three options in credit card debt elimination through consolidation. One is debt consolidation loan. The idea is to loan a big amount that you can use to pay off your multiple credit card debt. The second option is debt management wherein you hire a debt counselor who will help you create a more affordably monthly payment plan that will be presented to creditors. When they approve, you will send a them the payment on a monthly basis and they will send it to your respective creditors. The third option is balance transfer. You will apply for a new card account that has a zero interest introductory promo. You can pay off your debts without interest during the promo period.

If you cannot afford your payments, and only have enough for your basic needs…

…you can use debt settlement. This program may or may not involve a debt expert. It involves some serious negotiations with creditors so that they will allow you to pay a settlement amount that is lower than what you currently owe. Once this amount is paid off, the creditor will forgive the rest of the debt. To make the creditor agree, you have to convince them that you are in a financial crisis. To do that, you need to default on your payments deliberately – which can reduce your credit score significantly.

Any of these programs can help you eliminate credit card debt effectively. Be cautious with the selection and when you have picked one, make sure that you will stick to the program until the end.