Financial Future

Credit card debt is a major problem in this country. While not everyone has a credit card, those that do typically carry a balance. The APR on a charge card account balance is usually between 10-30% APR. These high APRs make it difficult for consumers to pay down their debt — especially if only making the minimum payment. In fact, just making minimum payments can make even the smallest balance over a decade to pay off and thousands of dollars in finance charges. It’s no wonder getting out of debt seems so hard.

Fortunately, you can get out of debt. If you follow a few basic steps and put a plan in place, you can work to pay off your debt sooner, with less interest, and improve your credit score in the process.

1. First, list each of your charge cards. You’ll want to include the outstanding balance, APR, and minimum payment. This information can easily be found on your last monthly statement.

2. Order the cards on the list so that the charge card account with the highest interest rate is at the top, and the lowest is at the bottom.

3. Total the minimum payments.

4. The total monthly minimum is your absolute lowest monthly payment, but remember, we want to pay more than the minimum in order to repay the debt quickly. So, take a look at your budget and see how much extra you can come up with each month in addition to the minimum. Whether it’s an extra $20 a month or $100, every little bit helps.

5. As your payments come due, pay the minimum on each card except for the one at the top of your list. Remember, that one has the highest APR and it costing you the most money by maintaining a balance. So whatever additional money you budgeted in the previous step, apply that to that card.

6. Continue this process until the first card is paid off. When that card is paid off, continue with the minimum payments on the other cards, but now take the amount you were paying on the first card in addition to the minimum payment and apply it to the second card on your list.

7. Repeat this process until all cards are paid off.

Why This Works

To understand why a relatively simple process works it’s important to understand how minimum payments work. Minimum payments are calculated as a percentage of the outstanding balance. That means as your card balance slowly decreases, so does your minimum payment. This is why it can take ten years or more to pay off even a small balance if you only make the minimum payment each month.

With this system, your monthly payment is remaining constant regardless of your balance. So each month your required minimum payment may go down, but you’re ignoring that and by doing so you apply more and more cash to your principal as time goes on, thus accelerating your debt repayment.

Starting with the highest annual percentage rate ensures you’re targeting the most costly credit up front to minimize the total amount of interest you pay.

A Few More Tips

While this payment strategy will help you get out of debt, you can potentially make things go even faster with a few other tips. First, call your charge card account company and ask about getting your rate lowered. This won’t always work, but if you have been on time with your payments and a decent credit score, they may be willing to work with you. It doesn’t hurt to try and it doesn’t cost anything. The worst they can do is say no.

Don’t forget about balance transfers. Again, it isn’t always easy to get credit and the balance transfer deal may not be the best, but if you can find a way to transfer the balance from a card with a 25% APR to a card with an 18% APR, that’s still something. There may be some special 0% offers as well, but they are harder to come by these days and the hidden fees may outweigh the benefit.

Finally, keep in mind that this process still takes time. There is no magic method of paying off debt, so realize that it will still take months or even a few years to become completely debt-free. But what we’re doing is putting a process in place to make sure that you can get out of debt as soon as possible. You can speed up the process if you continue to pay even more cash towards your debt as your budget allows.

This article is brought to you by www.JemCreditCards.com – More than credit card accounts, we build financial stability. A great place to compare the best credit card offers including Discover cards, Chase balance transfer credit cards, and much much more!

There are many different types of debt, some good, most bad.  Credit card debt is decidedly in the “bad debt” territory, just behind payday loans and title loans.  Approximately 73% of all American households possess a credit card account, with the average credit card debt of households with at least one charge card account at the end of 2008 reaching $10,679.  What’s more, charge card account balances are rising, not declining, and our collective debt levels pose a serious threat to the economy.

Why Eliminating Credit Card Debt Should Be A Priority

The rule of thumb is that if you can’t reasonably expect to earn a higher return on your money elsewhere, you should use excess cash to pay down your debt.  Why?  Because by carrying high-interest credit card debt you are making the bank rich, not yourself.  The average interest rate is currently around 15%.  That means for every $1000 you borrow on your credit card, you will pay $150 per year for the privilege.

To put that number into perspective, if you invested that same $150 per year in a retirement account and earned a long-term average of 8% per year, you would end up with over $20,200 in 30 years and over  $47,200 in 40 years.  That is an absolutely staggering amount of cash when you think about it.  In a very real way, that $1000 purchase on your charge card account isn’t just costing you $1000 plus the $150 interest payment, it’s costing you almost $50,000 over 40 years because not only do you lose the cash paid to your charge card company as interest, you miss out on any potential interest those payments could have earned you.  Due to the miracle of compound interest, it doesn’t take long for the opportunity costs to dominate the equation.

The Basics Of Eliminating Credit Card Debt

Debt consolidation is big business, but completely unnecessary.  There’s absolutely nothing credit consolidation companies can do for you that you can’t do on your own.  Besides, do you think those consolidation companies are working for free?  I don’t think so.  Here’s all you need to know to eliminate your credit carrd debt as quickly as possible.

Pay Off Your Highest-Interest Card First – Dave Ramsey teaches his students to pay off the card with the lowest balance first in order to give them a psychological boost at having accomplished a goal, however small.  Self-esteem is all fine and dandy, but the laws of mathematics state you should pay off the highest-interest card first.  You will end up paying less in total interest as a result and will eliminate your balances more quickly.  If you want to feel good about yourself, follow Ramsey’s advice.  If eliminating charge card account debt as quickly as possible is your goal, pay down your highest-interest debt first.  Then pay down your second-highest-interest debt, etc.  Which will make you feel better in the long run, paying off that $50 sweater you bought on your Gap credit card account or being completely debt free?

Call And Ask For A Lower Rate – This is where the debt consolidation companies love to toot their own horn.  They justify their fees by saying they will negotiate with your credit card account companies on your behalf to get your interest rate reduced.  Thing is, there’s absolutely no reason you can’t do this yourself, and you are at least as likely to get a rate reduction as the debt consolidation companies are.  Just call your lender up, explain that you really want to do the right thing and pay what you owe but you’re afraid you won’t be able to keep up with the minimum payments unless your APR is reduced. Most charge card companies will jump at the chance to help out a well-meaning customer.  Losing a points in interest is better than losing everything if you declare bankruptcy or simply decide not to pay.

Ask For A Balance Reduction – Getting your balance reduced outright is much less likely than getting your APR reduced.  Still, it’s worth asking.  If you are truly in dire straights the credit card account company might decide to take what they can get.

Do A 0% Balance Transfer – This probably isn’t an option for many consumers these days without decent credit.  Still, it’s worth a shot checking out some 0% balance transfer cards.  Not having to pay any interest on a few thousand dollars will free up a lot of extra cash to put towards principal, or perhaps another high-interest balance you weren’t able to transfer.

Do NOT Use Home Equity To Pay Off Credit Cards – Credit card debt is unsecured debt.  If you simply decide to stop paying, the worst they can do is ruin your credit.  Your Home Equity Line Of Credit (HELOC), on the other hand, is secured by the value of your home.  If you default on your HELOC payments, you could very well lose your home.  It’s not worth the risk.

This article is brought to you by www.JemCreditCards.com – More than credit cards, we build financial stability. A great place to compare the best charge card offers including Discover balance transfer credit cards, Chase cards, and much much more!

Over the years I’ve spent a lot of time in and around credit card account debt. My first professional job was in a customer service call center answering inquiries from credit card account customers. From there I bounced around to different areas within the company including fraud, new credit, and then on to software development. Each of these experiences provided ammunition for learning how to get out of credit card account debt – something I would use years later to get out of debt myself.

If you find yourself deep in charge card debt, consider the following tips for getting out of debt, and staying out.

Investigate legitimate debt relief programs. Thanks in large part to the recession, and a number of financial bailouts, there are some innovative ways to lower your credit card account payment. In fact, the government urges Americans to pay down charge card account bills. See if you qualify for debt relief.

Stop charging. This one seems so obvious I almost didn’t include it. Unfortunately, it is the one people usually fail to do with any conviction. The first step out of any hole is to stop digging. Debt management is no exception. Only then can you begin to devise a plan to crawl out. This step may require you chopping up your credit card accounts with a pair of scissors (keep one for emergencies), or at a minimum taking them out of your wallet and leaving them in a sock drawer at home. Whatever you have to do, stop making new charges.

Transfer balances to a low interest charge card. Start with these balance transfer offers from CreditCards.com. The lower your average annual percentage rate on remaining credit card debt, the more of a dent each payment makes in that remaining balance. Also consider a low-interest debt consolidation loan from Lending Club.

Pay debts off smallest to largest. Make minimum payments on all but the smallest one, and throw everything you can at the smallest one. The psychological advantage of scoring one or two quick wins bringing balances down to zero is worth the difference in interest charges. This is the snowball method of debt repayment made popular by Dave Ramsey in The Total Money Makeover, but many argue against the mathematics behind it. Like Ramsey says, “If you were good at math you wouldn’t have credit card account debt!”

Divide credit card minimum payments in half and pay that amount twice a month. Interest is calculated based on the average daily balance of your account for the entire month. By making a payment every couple weeks you are reducing that average balance and therefore reducing the finance charges assessed, as opposed to waiting until the end of the month to make a single payment. As an added benefit, splitting your payment into two separate payments helps smooth out the monthly budget as you will not have to come up with an entire payment once during the month, rather half that amount twice during the month (aim for around the time you receive your paycheck).

Make micro payments (commonly referred to as snowflakes) any time you receive extra cash. Send proceeds from eBay sales, garage sales, and any earnings from overtime or part time work directly to your credit card as soon as they are received. It may not seem like much, but it adds up. Besides, if you deposit the cash in your primary checking account you are more likely to spend it than to use it later in the month towards repaying outstanding debt.

Find part-time work. Sometimes this is the only option to generate cash flow over and above your normal monthly earnings. I offer this as a last resort, especially for families, because it often requires a parent being away from their family for long periods of time each day. Working a full-time job and then leaving for your part-time job makes for a long day. However, it also gives you more snow for that snowball, helping you become debt free even faster! Many times you can earn more than minimum wage retail jobs by doing something on your own. In the past I have mowed lawns, submitted articles to paying article directories, and volunteered for overtime to come up with extra debt snowball payments.

Close out your newest accounts. As balances are paid off, close out all but your oldest one or two charge cards (I hung on to only my oldest card). One of the components of FICO score calculations is length of credit history, which is negatively affected each time you open a new account. By closing these newer cards you are effectively making the average age of your credit history older. If you aren’t sure about how old your accounts are, I suggest ordering a copy of your credit report at MyFICO.com). If you are not confident in your ability to manage credit cards going forward, consider cutting up all of your cards and living on a cash basis, but only after you have a fully-funded emergency fund in place of at least five or six months of expenses.

By following the above tips you should be able to make progress towards debt freedom, however there is one key ingredient missing from the list. Anger. You have to get mad about being in debt to get out of it. You have to make it a priority. You have to be willing to sacrifice all other financial goals for a period of time to put every extra penny you can scrape together on debt.

As long as you are complacent about credit debt, it will continue to hang around forever. If you find yourself deep in charge card account debt I strongly urge you to find the proper motivation and start a debt snowball plan today. Tomorrow is just an excuse away. 

This article is brought to you by www.JemCreditCards.com – More than credit cards, we build financial stability. A great place to compare the best credit card offers including Discover balance transfer cards, Chase cards, and much much more!

As one would expect, the most important causes of credit success or failure will always be payment history and total debt owed. Although together these factors account for about 65 percent of your credit, there are several other aspects of your credit report that lenders look at to determine your credit-worthiness. Many of these factors are not obvious even to the most intuitive of minds. Here are 5 of the most overlooked factors that influence your credit.

1. The number of recent inquiries on your credit report. To most people this isn’t self-evident, but to lenders it makes perfect sense. If you have a lot of recent inquiries from lenders who are looking to determine your credit worthiness, then chances are you may be overextended and short of cash.

2. The proportion of your balances to their credit lines. If you’re maxed out on your credit card accounts, then lenders may consider it a sign of one of three things: a) you’re overextended and relying on your credit to make ends meet; b) you’re addicted to credit and overuse your credit lines; or c) both.

3. Closing charge card account accounts. Closing an account has the effect of lowering the credit limit on your credit report. Since you no longer are charging anything to that account whatever your current balance is also happens to be the credit limit. This being the case the credit scoring companies only see that a consumer is utilizing 100 percent of the credit line, thus affecting your credit negatively per point number 2.

4. Closing your oldest charge card account. Closing accounts affects your credit negatively, but since the impact is relatively minimal, it may be a necessary step to help get your finances under control. If you’re forced to make a decision about which account to keep open (assuming they have the same APR and chargess), you should always hang on to the oldest account. The length of your credit history is actually about 15 percent of your score, and having an account with some longevity can be a big boost.

5. Enrolling in a debt counseling service. The only way to maintain a positive credit picture is by paying your bills on time and in full every month. Any time you seek outside assistance in managing your finances whether through credit counseling or debt negotiation, future lenders will be inevitably turned off (more so by debt settlement than credit counseling it should be noted). Unfortunately, there is no way to get around it since your enrollment is reported to the credit bureaus by your creditors, not by the debt management company. This is a source of debate, but to be conservative, you should assume that you won’t be credit worthy until you’ve established positive credit history after completing your program. I know the last sentence sounds a bit contradictory. After all, how can you rebuild your credit history if no one will extend you credit? The answer is simple: gas cards and secured credit card accounts. These are very easy to obtain, and on top of that, you’re debt free. Some lenders will gladly extend small amounts of credit to someone who has income and no other financial obligations. Depending on the lender, it might take some time to qualify for the bigger loans, more specifically, a mortgage.

This article is brought to you by www.JemCreditCards.com – More than charge card accounts, we build financial stability. A great place to compare the best charge card offers including Discover cards, Chase balance transfer credit cards, and much much more!

Can Debt Reduction Cost You?

The savings from our debt reduction program are potentially tremendous assuming you complete the program and all your accounts are settled. By settling for less than what is owed and not just reducing the APR, settlement is an extremely cost-effective method for debt relief. Just making the minimum payments can cost as much as 3 times the balance owed before one is finally debt free. So for a $10,000 debt you end up paying $20,000 in interest alone! By negotiating the balance owed, in reality your savings constitute the reduction on the principal and the interest charges that would otherwise be paid (note:  interest does accrue on your accounts until they are settled, however). This being the case, debt settlement is a great option for consumers who are overwhelmed by their minimum payments and don’t find themselves actually bringing down their debt. That being said, however, debt negotiation is not for everyone. Three scenarios in particular stick out as examples of when our debt reduction program may not be your most cost-effective option: a) you have a high credit score; b) your debt amount is not high, c) the likelihood that you’ll be able to complete the program is low because you anticipate budgeting problems.  Please note that if you don’t fall under these categories it does not ensure that our debt reduction program will ensure you of savings.  Situations and results do vary.  The following are common situations where someone could encounter problems not realizing savings by using a debt relief service such as ours. 
Those with good credit

Why don’t people with good credit have to worry about their savings? Future interest charges may outweigh what we save you. Even though debt reduction can save you tremendous amounts of cash, it is possible that you’ll end up paying more in subsequent interest because debt settlement affects your credit score negatively and hence, the annual percentage rate of your future loan.

Needless to say, the impact of settlement on your credit is more dramatic if you have a higher score. So if you have perfect credit when you enter a negotiation program, the subsequent higher annual percentage rates that you would have been able to obtain when applying for loans may end up costing you more than we’re able to save you. This being the case, consumers with very high credit scores or low debt amounts should consider the following prior to doing debt settlement:

-How desperate is your situation? If it’s likely that the minimum payments will overwhelm you, what options are available to you? Can you refinance your home or get a home equity loan? If any of these options are available to you and you can afford it (be very careful though…you don’t want to lose your home!), then debt reduction may not be your best bet.

-When do I plan on applying for credit again? Generally, lenders look back at least the past 2 years of your credit history. Like most things, time heals the credit impact of debt negotiation, so the longer you can hold out on applying for credit, the better off you’ll be.

-If you do plan on using credit, what sort of loan will you be applying for? The cost associated with doing debt negotiation will be higher for getting a mortgage than if you apply for car loan. After all, 10% interest on a $200,000 loan is a lot more expensive than 10% on a $20,000 vehicle.

In the end, debt reduction is a great option, but the future implications of enrolling in our program should always be considered beforehand. We’re confident that we can help resolve any outstanding charge card debt, but it is important that you first understand how our program will fit into your individual situation.

Those Who Have Low Balances & Don’t Owe Much

With clients who have low balances, the reasons why savings tend not to be higher are two-fold.  For one, you have to ask yourself – is the credit impact of debt settlement worth it for this small of a debt amount?  Ultimately, this only can be answered by the client because what’s affordable for one person may not be for another because of their income or other necessary expenses.    

The other reason why low balances can be a problem is because late feess tend to inflate the balance much more on a percentage basis than larger accounts.  As mentioned previously, late chargess and interest accrue until an account is settled, but the reason why it impacts smaller accounts more is because the late chargess are usually flat, so $30 on a $600 balance will increase that account much more on a percentage basis than a $15,000 one.  This being the case, getting settlement terms that offer a deep reduction in the original balance can be difficult and therefore, you may want to consider another avenue if your accounts fit this profile. 

Those Who Cannot Afford the Program

Unfortunately, Franklin Debt Relief cannot determine whether or not you can afford our program – only you can.  Many Americans in debt problems, however, overestimate what they can afford on a monthly basis, and after enrolling in our service figure out that they can no longer manage the program payment.  Unfortunately, they lose all the chargess they paid to us up to that point because our cash-back guarantee does not apply to clients who cancel their program early.  Before choosing our service, sit down and analyze your budget and make sure this is something you can afford.  That means making sure you have enough “breathing room” in the event random expenses pop up.  If the program’s payment leaves you no flexibility or savings on a monthly basis, you should realistically assess whether to do this. 

If you’re interested in discussing whether debt negotiation is the right program for you, please feesl free to talk to one of our honest and ethical consultants at (877) 274-1260.

This article is brought to you by www.JemCreditCards.com – More than credit cards, we build financial stability. A great place to compare the best charge card offers including Discover balance transfer cards, Chase balance transfer credit cards, and much much more!