GETTING OUT OF CREDIT CARD DEBT

Unmanageable debt ranks high as a major life stressor. Thankfully, it’s a stressor that can be eliminated and avoided in the future.

A number of students will experience excessive credit card debt simply because they found it too easy to spend using plastic and because they didn’t differentiate between wants and needs. It’s a tough lesson to learn that the rush from spending recklessly soon dissipates when struggling to make even the minimum monthly payment (MMP) on a credit card account(s). Embarrassed that they got themselves into this situation, some teens hide their situation from others, which only adds to their stress level.

Although saddled with unmanageable debt, young adults should remember that there is always a solution. Rather than hiding their problem, it’s best to confide in a trusted adult who may be able to provide guidance to the situation.

Through the use of common sense, applying some financial savvy, and by making some hard choices, the student will soon get a handle on the problem and can be debt free. Following is important information that will help:

  • Don’t deny you have a problem. If you’re struggling to make the MMPs on your account, you have a dilemma that must be addressed. If you remain complacent about your credit card debt, it will be with you for years.
  • Stop using your card(s). This might seem obvious but it’s important. You can’t continue to add to your debt if you can’t even handle your current obligation.
  • Contact your issuer. If you’re having difficulty making the MMP on your account, call your issuer and advise them of your problem. The front-line customer service agent may not be able to help under these circumstances. Ask to talk specifically with someone who handles workout plans. Your issuer may be willing to waive late fees or over-credit-limit fees, or even be willing to reduce your APR.
  • Make a budget. You need to know how your money is used. To start, keep a journal to see exactly how you are spending your money. This includes small expenditures. Separate essential from non-essential items. The goal is to see if you can free up some money to pay down your credit card debt.
  • Increase your income while reducing your expenditures. Make a commitment to do without those things that aren’t necessary.
  • Find a job. If you are already employed, you may be able to find additional part-time work.
  • Don’t skip payments … make sure you pay at least the MMP on all accounts each month.
  • First pay down your card with the highest APR. Make the MMP on all of your cards except the one with the highest APR. Make the highest payment possible on this account until you get the balance down to zero. If you have several cards, follow this process until all have a zero balance.
  • Take advantage of a balance transfer offer. By transferring your balance which has a high APR associated with it to a card with a low APR, you will be able to pay off your debt faster. However, be sure you understand the terms. Is their a balance transfer fee? How much? How long does the offer last? Typically, a balance transfer offer that lasts one year is better than a six month offer. What is the go-to rate? That is, at the completion of agreement, what will the new rate be? Does the low introductory offer apply to both the transferred balance as well as new purchases? If the low APR only applies to the transferred balance, it’s best not to use the card for new purchases.
  • If all else fails, consider contacting a credit counselor for help. Be careful not to get scammed, especially by those late night offers to “get you out of debt.” Best to stick with the tried and true. The National Foundation for Credit Counseling can be located at www.nfcc.org or at 800-388-2227.

GOOD PRACTICES

  • Make a commitment to yourself to spend less than you earn.
  • Call your issuer and ask for a lower APR. Even if you can manage your credit card payments, it’s best to have the lowest APRs possible. A simple phone call could end up saving you high interest costs.
  • If you must use credit, use your cards that have the lowest APRs. Remove the others from your wallet and store them in a safe place.
  • Once you are out of debt, NEVER, EVER PAY JUST THE MINIMUM MONTHLY PAYMENT! When you make just the MMP, most of your payment goes towards interest. Your balance remains virtually untouched while revolving month after month generating more interest for your credit card issuer!
  • Make mini payments on your account. If you earn unexpected money, for example, from a garage sale or overtime, pay down your credit card account. Even if this is a small amount of money, it adds up.