Finance

Buried Under Credit Card Debt?

It can happen to the best of us.  Maybe you got a little charge happy.  Maybe you needed to use your credit cards to pay for an emergency or to pay for your bills.  Maybe you just weren’t paying attention to the terms of your credit card.  And then one day you’re looking at a stack of credit card statements and wondering what the heck happened.

There are a lot of “pay off your credit card” articles out there and most give you the same advice: pay off the higher interest cards first, try to renegotiate with the companies, try to increase your income, etc. That’s all well and great. I’m sure it’s financially sound.  But let’s talk about the psychic burden of credit card debt and consider a different approach.

When you see all those statements come in every month it’s very disheartening. It’s discouraging to see all your hard earned income going towards credit card balances that don’t ever seem to go down.  It seems impossible to get out from under the debt. The interest and fees are killing you.  You may feel depressed, overwhelmed, perhaps even like a failure for not “managing” your money correctly or understanding the fine print in your credit  card agreements.

First,  snap out of it.  Credit card companies have one goal: profit.  And they make the most profit off of someone who pays the minimum, pays late, and has the highest interest rates.  The system is set up to make it easy for you to get into big trouble.  So whatever happened, however you got in this situation, let it go.   Seriously.  Move on. Now you know, and now you can do something about it.

Here’s how to get a handle on your credit cards and improve not only your credit score but also reduce the stress of your debt.

Step One:  Take Stock of Your Credit Situation

First, you’ve got to check your credit report. I know, you’re afraid.  It’s depressing.  It’s overwhelming. But do it. You need to see where you are. And you need to see if there are errors on your report.  Spoiler alert: most people have errors.  You can fix those and bring your credit score up quickly.

The most important thing to know is this should NOT cost you a cent.  If you look for free credit reports a lot of paid sites and credit monitoring sites come up.  Ignore them. You  can get a free credit report from the government once a year at annualcreditreport.com.

However I really recommend Credit Karma (creditkarma.com).  This is not an affiliate link, I get nothing from recommending them, I just think they’re awesome.  If you join Credit Karma you can literally check your report every day (although once a month is fine).  It’s right there online. You can see trends.  You can watch your number improve every month. They make recommendations for fixing your credit.  And if you see something wrong on your report, in most cases you can dispute the error right from their page.

Step Two:  Make A List

Next gather all your bills and make a list (or a spreadsheet) of your credit cards.  List the name, the monthly due date, minimum due, total due and if you’re behind on payments. You can run some totals if you want, but I wouldn’t recommend it if you think you’ll  just feel worse.  The important thing is to get it all in one place.

Next group then by due dates and see how they correspond to your paydays.  So if you get paid twice a month, see what’s theoretically due from each pay period.

Step Three: Get the Past Dues Up to Date

If you’ve got things that are past due, let’s focus on those first.  Past dues are a triple whammy:  they’re messing up your credit report (on time payments is one of the most important factors in determining credit scores), you’re accruing interest AND you’re paying late fees.  And you don’t need them calling you bugging you for money, that just adds to your stress.

Hopefully you can get the past dues caught up and still make the minimum payments on other bills. If not, remember that your housing payment (rent or mortgage) should be your top priority. After that I recommend paying the past dues, then the minimums on anything else that shows up on your credit report (like credit cards and car payments) and lastly the other bills.  If you’re a bit late on utilities that won’t usually show on your credit report like a late credit card payment does.  I’m sure some financial planner somewhere is going to tell me this is flawed advice, but it works.

Once the past dues are caught up, or if you don’t  have past dues, then it’s time to start knock down those credit cards.  How?  Well even though this will cost you more interest in  the long run, I recommend paying them off in order of balance.  Pay off your smallest balance bill, then take the money you would use for that bill and use it to make increased payments on the next highest bill,  then pay that one off, and move onto the next one.

Here’s an example: you owe $200 to Sears, $500 to Best Buy and $3,500 to Citibank.  Pay the minimums at Best Buy and Citibank, and get that Sears paid off.  Then take what you used to pay Sears and focus on paying off Best Buy.  Then move onto Citibank.

I know it’s more cost-effective to pay the highest interest cards first, but what if that’s your highest balance card too? In this example, if Citibank is your highest interest card it will take forever to pay that thing and it’s super discouraging.  But if you pay off that Sears card you’ll  think, wow I’m making progress, I paid off a card. It reduces your emotional burden, and a little success will make you more encouraged to focus on getting your cards paid off.

Step Four: Pay As Much as You Possibly Can

Use every dollar you can to get those cards paid off.  This may mean you may need to do a few months of “austerity month”, as we like to call  it at my house, where you reduce nonessential expenses like eating out, entertainment, and brand name groceries.  I know it doesn’t sound fun, but now’s the time to get a handle on these cards and get them paid off.

If your cards have been sent to collections, the collection agency may offer you a lower payoff amount.  This may be appealing but you should know it may hurt your credit if the collection agency reports the debt as “settled” instead of “paid”.  And if you do a settlement, get it in writing. Unscrupulous collection companies have been known to sell of the rest of your debt, i.e. the amount between what you originally owed and what you settled for, and then a new company is harassing you for money.

Step Five: Don’t Take on New Credit Card Debt

Look, you worked really hard to pay those cards off.  Don’t give into temptation to use that newfound available credit.  It’s hard, super hard, but commit to yourself you won’t charge anymore unless it’s a huge emergency.  And by huge emergency I mean your roof is leaking or there’s a bone protruding, not that there’s a great deal on vacations on Orbitz.

If you’re charging more while you’re paying off you’re swimming upstream against a tsunami, and if you add debt once you paid that card off, you just undermined all your hard work.  Pay those cards off and resolve that from now on, if you charge something it’ll only be something you can pay off at the end of the month before the interest charge hits. The do it.  Be strict.

One last note: you may think you should close the card once you pay it off to avoid temptation.  Don’t make that mistake. If you close the card it reflects badly on your credit report, because one of the highest factors in your credit score is the amount of debt you have compared to the amount of credit available.  Having some open zero balance cards will actually help your credit report.  If you’re afraid you won’t have good self-control, keep it open but cut the card up so you won’t use it.

Good luck getting that credit card monkey off your back.  Do you have other tips? Share in the comments.

About Rose Bak

Rose Bak is a freelance writer and author who lives in the Pacific Northwest with her family and special needs dogs.   Rose writes both fiction and non-fiction in a variety of mediums. Rose specializes in the following types of writing:  blogs, self-help, romantic fiction, humor, narrative, personal finance, business, self-help, housing, domestic violence, grant writing and public administration. For more information on projects and rates, contact me at rosebakenterprises@msn.com. Visit my author page at amazon.com/author/rosebak. Follow me on social media Facebook: https://www.facebook.com/AuthorRoseBak/?modal=admin_todo_tour Twitter: https://twitter.com/AuthorRoseBak Instagram: https://www.instagram.com/author_rose_bak/ LinkedIn: https://www.linkedin.com/in/rose-bak-mpa-0232b581/ All opinions expressed in this blog are solely the authors and are copyright Rose Bak.  No part of these pages can be reprinted without written permission from the author. As an Amazon Associate I earn from qualifying purchases.

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