Eliminate Credit Card Debt - Secrets Revealed

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Avoid Credit Card Debt And Be Stress Free
Debt is a crisis. It disturbs normal life and people suffer from all the possible intricacies in life because of debt. Debt usually happens because of inaccurate planning, over expenditure and currently, the over use of credit cards which create an unbelievable amount as balance. Many banks have come up with innumerable credit cards options which worsen the situation.

Credit card debt h... Read debt consolidation article



Credit problems - How to repair credit ratings
It's not just the negligent who can end up with having a bad credit rating. Courtesy fraudsters, you can have a bad credit rating even if you have been making all your payments in time and taking all precautions. Whatever landed you with a bad credit rating, the important question is how to repair it. Let's start with the scenario where you have been doing everything right and still end... Read debt consolidation article



Eliminate Credit Card Debt - Secrets Revealed
You eliminate credit card debt by paying off your credit card balances.

You can make the minimum payments (about 4% of your debt or $10, whichever is larger). But, if you only make the minimum payments, and don't charge anything new, it may take 14 years or more to eliminate your credit card debt. The length of time largely depends on the interest rate you are being charged.

The ideal solution is stop charging things to your cards and pay more than your minimum payment each month to eliminate your credit card debt faster. People typically decide how much extra they can pay beyond the minimum required payments. Then, they pay that amount every month until they have completely eliminated their credit card debt.

So, let's suppose you have four credit cards with the following characteristics:

Card 1: $3,500 balance at a 21% interest rate

Card 2: $2,500 balance at a 19.8% interest rate

Card 3: $4,000 balance at 17.9% interest rate

Card 4: $2,000 balance at 12.9% interest rate

That totals $12,000 of debt. The current minimum payments for these cards (at 4% of the total debt) total $480.

Suppose you can add another $100 to that payment to make a total payment of $580. You will pay $580 each month until you have eliminated your credit card debt.

So, how do you allocate that extra $100 to the four credit cards?

The 3 Methods

There are basically three methods that are suggested:

1) Add all the extra money to the card with the smallest balance.

2) Add all the extra money to the card with the highest interest rate.

3) Add the extra money proportionally to the cards based on their current balance.

Using method 1, you would add the $100 to the payment of Card 4 with the lowest balance. The minimum payment (4% of $2,000) is $80. So, each month you pay $180 on Card 4. This method eliminates Card 4's debt after 11 months. When Card 4 is paid off, you add $180 to Card 2's payment. You then add the amount you were paying for Card 2 to Card 1. Then you pay the entire $580 on Card 3 until it is paid off.

Using method 2, you would add the $100 to the payment of Card 1 with the highest interest rate. The minimum payment (4% of $3,500) is $140. You would pay $240 each month until Card 1 is paid off. When Card 1 is paid off, after 17 months, you add $240 Card 2's payment. You continue to add the amount for a card you paid off to the next card with the highest interest rate.

Method 3 is the most complex. Here you divide up the extra $100 between the four credit cards in proportion to the current balance. In general, the way you determine the amount to add to a payment uses the formula:

(Balance for Card)/(Total Debt)x(Added Amount)

For the first payment, the amount you add to the minimum payment for each card is computed as follows:

Card 1: (3500)/(12000) x $100 = $29.17

Card 2: (2500)/(12000) x $100 = $20.83

Card 3: (4000)/(12000) x $100 = $33.33

Card 4: (2000)/(12000) x $100 = $16.67

Since this is harder than the other methods, you may want to determine the amounts you add to each card only every six months or so.

How Do The Methods Compare?

All three methods will eliminate your credit card debt. So, is one method clearly superior to the other methods?

Here are the results:

Method 1: Add to the smallest debt. This methods will eliminate your credit card debt in 26 months. You will pay a total of $14,618 with $2,618 in interest charges.

Method 2: Add to the highest interest rate. This method will eliminate your credit card debt in 25 months. You will pay a total of $14,471 with $2,471 in interest charges.

Method 3: Allocate proportionally to balance. This method will eliminate you credit card debt in 26 months. You will pay a total of $14,551 with $2,551 in interest charges.

Using method 2 (highest interest) will save you $147 and 1 month over method 1 (lowest balance). So, compared with the $12,000 initial debt, the differences between the methods is relatively minor.

So which method should you use?

If you are interested in a psychological boost by quickly paying off a debt, then pay off the smallest debt first. This will get it out of the way quickly.

If you are interested in paying the absolute least amount of money with the quickest debt elimination, use your excess money to pay off the debt with the highest interest rate first.

If you want to pay off your debts at nearly the same time and don't mind the calculations, allocate your excess payment between all your debts.

The important fact to note is that by adding $100 to your payments you paid off your debt in just over 2 years.

Bob Sherman is the webmaster of http://www.bobshermancredit.com which expains the essential knowlege about credit and debt. The information in this article is taken from him ebook, "How to Free Yourself From Credit Card Debt", available at no charge on his website.

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Debt Counseling Frauds

Everywhere in the world today, people are becoming submerged in debt. Everywhere you look, it is possible to purchase today and pay tomorrow, consumers are steadily falling into this trap everyday, and before they know it, they are so far in debt they are unsure how to get out. This is where debt counseling comes in; however you need to be made aware of debt counseling frauds. Some are only in place to take your money.

Legitimate debt counseling companies do not claim to be not-for-profit if they are not. There have been cases where a company has claimed this and ended up swindling their client's money. There are ways to protect yourself; you should check a debt counseling company's reputation thoroughly before investing your time and effort into them.

Never conduct business with a company that requires any upfront fees or asks you for voluntary contributions. This is a red flag, legitimate debt counseling companies advise you on money management, budget development, debt and educational material and occasionally workshops.

Essentially, it is none of their business regarding the details of your situation or requires you to be approved. They should discuss your financial situation and help you in developing a plan to eliminate the problems.

You can also check your local government agency or better business bureau, to ensure that they are indeed legitimate and no complaints have been filed against them.

The other things that will tell you rather or not a debt counseling service is legitimate include the following things. If they promise lowered payments, leave, only interest rates can be lowered not payments. If they ask you for your account numbers prior to giving you a quote, this is not necessary at all. If they group the quotes together instead of giving you a breakdown of how each creditor will be handled, this will leave you with no idea of how long it will take to pay off each account.

There are also questions you should always ask when choosing a debt counseling service. These questions should include charges for educational material, a disclosure in writing of fees that are charged, if they are properly licensed to do business in your area, what will happen if you cannot afford their fees, what type of services do they offer and if the counselors are certified and who certified them. This is your money and your financial well-being, do not leave any stone unturned.

There is a new bankruptcy law that makes filing bankruptcy harder for everyone. To file a chapter 7 will be nearly impossible if you are currently employed. They have formed a test that you will have to pay showing that your income is less than the median income for your area. Along with these new laws, it has become required to obtain debt-counseling services when filing bankruptcy.

Choose the debt counseling company very carefully and ensure they are legitimate. You do not want to cause more harm or damage to your credit, so choose reputable companies wisely.

Ethan K. Roberts writes about a variety of subjects including Best Credit Counselors. More articles are available on credit debt counseling service and credit counseling service.


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Eliminate Credit Card Debt - Secrets Revealed
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