The Debt Hawk » Credit Cards

How To Get Out of Credit Card Debt

Hawk — Thu, 11 Mar 2010 03:32:23 +0000

Stop Worrying About Credit Card Debt

Credit card debt is one of the worst types of debt anyone can have. People rarely use credit cards to earn more money, to finance an education, to grow a business, or to purchase an investment. Instead, people buy "stuff" they don't need or could have saved money for before buying. Additionally, credit cards are notorious for having high interests rates. This makes credit card debt toxic.

If there is one piece of personal finance advice that I wish everyone would practice, it would be to get out of credit card debt and to stop carrying a balance from this point forward.

Unfortunately, many people up to their eye balls in credit card debt, don't know how to start paying off their credit cards. Here is my guide for how to get out of credit card debt.

Getting Out of Credit Card Debt Is About Velocity

Many people say think getting out of debt is a marathon, not a race. I totally disagree. You need to be laser focused on getting out of credit card debt. Dave Ramsey calls this gazelle intensity.

The faster you can pay off your credit cards the better the chance you will follow through and actually get them paid off. If you don't increase your payment velocity, you run the risk of losing interest and falling off the wagon.

So, to start the process of getting out of credit card debt, commit yourself to increasing the velocity of your credit card payments. Focus on,

making bigger payments
cutting spending so that you can make bigger payments
selling items so that you can make bigger payments
earning more so that you can make bigger payments

If you focus on doing all of this really, really quickly, you will start seeing results which will make you even more motivated to pay off credit card debts.

Quit Using Credit Cards

The first step in getting out of credit card debt is to quit using credit cards all together. There is only one way to make sure that you don't get deeper in debt - stop using credit cards. People who don't stop using credit cards will never get out of debt. So say these words out loud,

I hereby promise to myself and my future that I will never use my credit card again.

If you make this pledge today, you will be taking a huge step towards getting out of debt.

Transfer Credit Card Debts To Lowest Interest Credit Card

After you have committed to stop using credit cards, one of the best ways to stop the hemorrhaging is to transfer high interest credit card debt to your lowest interest credit card.

If you don't have a high enough credit limit, call your credit card company and ask for a credit limit increase. If you still can't consolidate your credit card debt onto your lowest interest credit card, you might have to keep more than one card. No big deal. You will just pay off two cards.

Start Paying Off Credit Cards

There is a lot more to learn about how to pay off your credit card debt, but at this stage, just start paying off any debt you can with any extra money you have. The tips below will help you to increase the amount you can put towards your payments.

But, don't wait until you have the perfect plan in place. Just start paying more to your credit card companies. Remember this is about intensity. You know your mission so start paying off your debt.

Make More Frequent Credit Card Payments

This is the part of the get out of debt guide where you will learn some great tactics to pay off your credit card debt faster. Credit card interest is calculated on the average daily balance of your debt. You can pay your principle off faster by paying your credit card company more than once a month. Here are my favorite ways to make more frequent payments to your credit card company and thus paying less in interest and paying off your balance quicker.

Bi-Monthly Payments - Many people are paid on a bi-monthly basis or every other week. Make a payment to your credit card company every time you get paid. Each payment doesn't have to be the full monthly payment amount. You can pay half the monthly payment with each payment.

Cut Spending - Look at all of the services you are spending money on and cut them down. Here are some quick areas where there is money to be saved:
- TV service
- Phone service
- Groceries
- Gym memberships
- Car payments
- Eating out

Sell Items to Make More Frequent Payments - One of the best ways to make more frequent payments is to sell possessions that you no longer need. Do you have a second car that you aren't using? Do you have a stack of books lying around the house? Comics books? An expensive watch? Clothes that no longer fit? Search your house high and low for anything you can live with selling. Some great places to sell your items are eBay.com, Craigslist, or local consignment stores or pawn shops.

Snowflake Payments - Throughout the year all of us receive monetary gifts and other irregular lump sum payments. Instead of spending these on more stuff, make extra payments to your credit card companies. Many people call these "snowflake payments." One of my favorite ways to make a snowflake payment is through the use of an IRS refund check. Instead of wasting that money, use it to pay down credit card debt.

Earn More Money To Pay Off Credit Cards Faster

This is my absolute favorite way to pay off credit card debt fast. Go get a second job, start a small business, or find a full-time job that pays more money. Increasing your income will make paying down your debt so much easier. Here are some ideas for second jobs:

House cleaning
Lawn mowing
Snow removal
Retail
Pizza delivery
Newspaper delivery
Carpentry
Wash cars
Babysitting
Pet sitting

This is a very small list. There are tons of part-time jobs available for hard workers.

I like to tell people to find a second job in an area that incorporates their hobbies. If you work inside all day during your 9x5 job, but love spending your free time on the week outside, go mow lawns. If you enjoy hanging out at a favorite bar, see if you can get a job there on the weekends.

I often joke with my wife that I would love working at Barnes & Noble. If you love bookstores like me, then go get a part-time job in your local bookstore.

Second jobs have an added benefit. In addition to the extra income, you will have less time to spend money. This means that more of your income can go towards paying your credit cards off.

Debt Management

Many writer would have started their how to get out of credit card debt guide with this material. But, I don't.

Debt management (creating budgets, writing down your expenditures, balance sheets, cash flow statements) is nice, but I don't think a critical first step to getting out of debt. Too many people get paralyzed at this stage and then fall of the wagon.

This is the last thing I want you to do.

My thoughts on creating a budget - Don't get me wrong, I think that budget are extremely useful and for those who can stick to the process, good for you. But, many people hate them.

Budgets are tools. Nothing more - nothing less. Budgets are great at helping people to prioritize where and how they spend their money. But, I think most of us have a pretty good gut feel for where we spend money. Sure, I am sure that we would all be surprised about where we spend some of our money. But, creating a budget is not the first thing that needs to be done.

Focus on maniacally cutting spending. Focus on earning more money. Focus on making more payments to your credit card company. If you feel that you need a budget to do this, then create a budget. If not, don't stress out over it. I would rather see you spend you energy cutting expenses and working more hours at your second job.

These same remarks apply to creating expense statements, cash flow statements and balance sheets. If you find that you need them, then do them. If not, do them when you have time. For goodness sake, don't let them keep you from making more credit card payments and earning more money.

You probably have time to do them both, but I prioritize the other actions over these if you do not have the time.

Other Great Resources For People in Debt

If you would like to read more great resources for how to get out of debt, I highly recommend the following guides:

Start Taking Action Today

Let me end this how to get out of debt guide by issuing a call to action. If you don't start taking action immediately, you will fail. You need to aggressively pay off your debt. This requires discipline and maniacal focus. But, the quicker you pay down your debt, the better chances you will have in being debt free.

As you see your credit card debt total decrease, you WILL be more motivated. You WILL cut more spending. You WILL earn more money. You WILL pay off your credit cards faster. Now, go on and start paying off your credit card debt!!

Clean Up Credit Card Debt

Hawk — Fri, 08 Jan 2010 10:30:08 +0000

Everyone runs into some kind of financial trouble during their lives. In today's economy, it's even more likely to be happening to you or someone you know. Luckily, there are many ways to find relief and take care of the problem before it wipes you out.

There are two things you should do immediately to begin to solve this problem.

Create A Budget

First, you need to develop a realistic, workable, and honest budget. The easiest way to do this is to start with two columns: Income and Expenses.

Under the Income line, put your weekly, bi-weekly, or monthly income – your actual take home pay, after taxes, insurance, and everything else. For our example, we'll use Bob and Marie Johnson. Bob works full time and brings in bi-weekly paychecks of $1,400 each, or $2,800 per month. Marie works part time so they don't have to pay for daycare and makes $680 per month. Their total income is $3,880 per month. That is actual take-home money that they can spend.

Now for Expenses. Their mortgage is $1,200 per month and includes insurance and other requirements. Their car payment is $300 per month and insurance is $60. The rest are household expenses: groceries, cable TV/Internet, and so forth. Their total expenses are $2,950 per month. That leaves $930 for paying off debt.

Looking at it this way, Bob and Marie aren't in bad shape. Of course, none of this includes savings plans, emergency needs (with two children, this is always a good idea), and other expenses. It also includes no “fun and entertainment” spending for dinner out or movies. It's just the bare bones basics.

Talk to Your Credit Card Company

The next step is to talk to your credit card creditors. If you are only a payment behind or are struggling to keep up, this phone call, while nerve-wracking, can really do something to help. This is especially true of you've suffered a job loss, medical problem, or something else that has severely affected your income. Often, talking to your creditors can reduce interest rates, result in debt reduction, and often qualifies you for fee waivers and new payment schedules.

A simple rule that I live by is - "It never hurts to ask."

For Bob and Marie, none of this applies, but they do have chronic late payment fees on one of their cards because its due date is three days before Bob's paycheck is deposited every month. So Bob called the company, talked to them, and got all of those fees removed from the past two months (at $25 or more each, that is a great way to get back some much needed money) and rescheduled the payment due date for five days after his check normally deposits, giving him time to write a payment and have it in the mail when he's paid.

Little things like this can really begin to ad up quickly. This is only an example, but in both good times and bad, being honest with yourself about your money is the first big step towards keeping your financial health in order.

Top 5 Cash Back Credit Cards

Hawk — Wed, 16 Dec 2009 20:49:47 +0000

Cash back credit cards are a great way to make a little extra money from money that you are going to spend anyways. But, it is important that you find the best cash back credit card that fits your spending habits. Hopefully this article will help you to find a cash back credit card that fits your spending habits.

Warning: If you already have credit card debt or have had credit card debt problems in the past, do not use cash back credit cards. The little amount of money that you can make from them is not worth the risk of running up credit card debt.

Top 5 Cash Back Credit Cards

Discover Motiva Card

I think that the best cash back credit card at the present time is the Discover Motiva Card that gives back up to 20% cash back on purchases through their Shopdiscover online store. There is 1% cash back on all other purchases which has no upper limit.

This card has no annual fee and the current APR is 3.99% for the first 6 months then can be as low as 11.99%. The rate after the introductory time is dependent on the applicants credit score.

Discover More Card

The Discover More Card gives 5% cash back on purchases made on travel, gas, groceries, and restaurants. Also, there is 5% to 20 % at the Shopdiscover online retailer and 1% on all other purchases.

There is no annual fee and the intro APR is 0% for 6 months then as low as 11.99% which is dependent on the applicant’s credit score.

Chase Freedom Card

The Chase Freedom Card gives $50 cash back after the first purchase is made. There is also 3% cash back on a rotating selection of categories like gasoline, home improvement, supermarkets, and department stores. The remainder of purchases is a full 1% cash back.

This card has an introductory APR of 0% for 6 to 12 billing cycles. The length is determined by the applicant’s credit score. After the introductory rate expires, the rate could be as low as 13.24%. This again is dependent on the applicant’s credit score, but there is no annual fee.

American Express Blue Cash Card

The American Express Blue Cash gives card holders up to 5% back on purchases made at supermarkets, gas stations, and drugstores and 1.25% back on all other eligible purchases.

This card has an introductory rate of 0% APR for 6 months with no annual fee. After the introductory period, the APR can be as low as 13.99% plus the prime rate. This is dependent on the credit score of the account holder.

Capital One No Hassle Cash Rewards Card

The Capital One No Hassle Cash Rewards card offers 2% cash back on purchases at gas stations and major supermarkets and 1% back on all other purchases.

The introductory APR is 0% until December 2010 then is raised to 14.9%. There is no annual fee associated with this card.

These are the top 5 Cash Back credit cards as of December 2009.

Credit Card Help: Never Miss a Credit Card Payment

Hawk — Fri, 06 Nov 2009 11:02:45 +0000

More people get into trouble with credit cards than any other financial product. For those looking for credit card help, my number one piece of advice is to never miss a credit card payment.

There is no credit card mistake that will cost you more money in the long run than missing a credit card payment.

The first problem with missing a credit card payment is that your credit card company will hit you with a hefty late payment fee. These late payment fees can really prevent you from getting yourself out of debt.

The second problem is that your credit card company might increase your interest rate. If you were having problems paying off your credit cards before the increased interest rates, now you will really have trouble paying them off.

The third problem, and probably the one with that will affect your for the long term, is your credit score will take a huge hit. If you miss a payment, your credit card company will report you to the credit bureau. This negative mark will make it much more expensive for your to borrow money in the future.

I hope that if you are having credit card debt problems, this article informed you about the pain that can be caused by missing a credit card payment. If there is one piece of credit card help that I can give, it is to stay current on your credit card payments.

Bank of America Credit Card Annual Fees

Hawk — Mon, 19 Oct 2009 18:14:34 +0000

Did you hear that Bank of America is testing out how much of an annual fee it credit card holders will endure? Bank of America credit card holders are receiving letters stating that on December 7, 2009 they will be charged a Bank of America credit card annual fee.

The interesting thing about this story is that BOA credit card holders are being charged different amounts. It seems like this is part of a live survey that Bank of America is conducting to determine what is the best price point for its credit card annual fee.

I was listening to the Clark Howard show and he said that a person on his staff was told that her annual fee would be $59.99 meanwhile several callers reported that their fees were $29.99 and $49.99.

This should really concern credit card holders. If card holders accept the BOA credit card annual fees, it is just a matter of time until Capital One, Citibanks, and Chase credit cards follow Bank of America's lead.

This is one of the unintended consequences of all of the Credit Card Bill of Rights legislation that has been passed. Whenever government regulates business, the consumers always pay for it in the end. While credit card companies will have harder times charging late fees, they will make up for it by everyone an annual fee. Once again, people who pay their bills on time will be punished so that those who are late don't get gouged.

For those of you who are Bank of America credit card holders call up Bank of America and protest its annual credit card fee. But, be careful because they might close your account if you reject the fee. Therefore you might want to get another credit card so that your credit does not take a hit when you cancel your Bank of America credit card.

AmEx Gift Cards For College Students

Hawk — Tue, 06 Oct 2009 10:28:26 +0000

While it will be a long time before my children go off to college, I often think about it. One of my biggest fears is that they go to college and rack up a ton of credit card debt without me knowing about it. That got me thinking that AmEx gift cards would be great for college students.

If you have a child who is going to college, you might want to think about using AmEx gift cards to prevent them from applying for credit cards. You can load the gift card up and give it to them to have money throughout the term. Maybe you could send them a new card every other week to prevent them from blowing too much money at once.

Another great option is a prepaid debit card that you can recharge by depositing money with the bank that issued the debit card. One such bank debit card like this is the Wachovia Buxx prepaid debit card.

Do you have a child in college? I would love to know how you give them money.

Credit Card Debt Relief

Hawk — Thu, 20 Aug 2009 11:38:47 +0000

Today is the effective date for the first phase of the Credit Card Reform Act. I say first phase because the majority of the provisions go into effect in February 2010. But, credit card debt relief is starting.

This first phase of the Credit CARD Act is designed to give more notice to credit card holders that their monthly payment are coming due. Beginning today credit card companies are required to send credit card bills 21 days in advance of the payment due date. Previously, credit card companies were required to send a bill within 14 days of the due date. Now credit card holders have 7 more days notice to pay their credit card bill.

The second change going into effect today is that credit card companies must give card holders 45 days notice of significant changes to their contract. More notice is a good thing, but will people actually read the statements?

You might be asking whether a free market proponent like me approves of these types of laws. I do to the extent that they does not hurt availability to credit and individual rights.

Being pro free market does not mean that you have to believe in laissez faire economics. While I strongly believe in individual rights and liberty, there are things that government can do to increase the rights of individuals. I never want to see the principles of the right to contract freely eroded in this country, but the credit card debt relief laws that are going into effect today do not infringe drastically on our ability to contract freely.

The practice of sending out credit card statements with a short due date is ridiculous. The only reason why credit card companies are doing this is to rack up late fees and give themselves more chances to raise credit card interest rates. Too bad credit card companies' primary goal is to not just get paid as they originally contracted. Hopefully, the Credit CARD Act will give more consumers time to pay their credit card bills on time. This is the type of credit card debt relief that I applaud.

Get Out Of Credit Card Debt – $2900

Hawk — Mon, 17 Aug 2009 11:00:51 +0000

As I was surfing the Internet today, I ran across a college student who was asking advice on how to get out of credit card debt. This student owed $2900 in credit card debt.

Get Out Of Credit Card Debt

The first thing I thought to myself was good for this guy asking for help while his debt was only $2900. Many college students rack up a lot more credit card debt than this. Luckily for this student, $2900 is a pretty small amount of debt to pay off even for a college student.

Get A Second Job To Pay Off Credit Card Debt

My best advice for paying off credit card debt is to get a second job. For a college student this is the best way to pay off debt fast.

College students usually have a lot of free time. Classes typically only take up to 15-18 hours a week. That leaves a lot of free time for studying and partying.

Whenever a college student asks me what type of job should get, I always suggest one of three types of jobs - (i) a job that allows the student to study while working, (ii) a job that allows the student to network with professionals in the field he or she is pursuing, or (iii) a job at a place where his friends hang out in their free time (often a bar).

When I was in college, I worked as a night time receptionist at a law firm. This allowed me to accomplish two of the above job types with one job. There were not that many telephone calls coming in at night so I got to do a lot of studying. I also got to talk to a lot of lawyers. For a future law school student, this was a great chance to explore what type of law I wanted to practice and network with people in the profession.

This is a great way to build your resume while at the same time paying off your credit card debt. $2900 in credit card debt will not take a long time to pay off. At $8 an hour, you can get out of credit card debt in as little as 362 hours. If you work 15 hours a week you can pay off this debt in 24 weeks.