Overwhelming credit card debt happens to so many of us. Offers show up frequently in the mail inviting us to get a credit card so we can get what we want now! Maybe it isn’t overspending but unexpected medical expenses or a job layoff reducing your income. Whatever the cause, you now have a problem that needs a quick and effective solution. Consider contacting the Tax Crisis Institute for professional advice.
When Do I Have too Much Credit Card Debt?
You know you have too much credit card debt when the following are patterns of financial behavior:
- Are you maxing out your credit cards?
- How much of your credit availability are you using?
- Are you making only minimum payments on your credit cards?
- Are you making credit card payments with other credit cards?
- Are your credit card payments high relative to other debt?
- Is your debt to income ratio high?
The debt to income ratio is calculated by adding all your monthly debt payments. Divide that amount by your total gross income before taxes and other deductions. A good debt to income ratio is less than 36%.
Why Should I Eliminate Credit Card Debt?
The average American household has about $16,000 of credit card debt with the average individual holding an average of $5,000. The interest rate charged for credit card debt and the minimum monthly payment is designed to increase the wealth of the bank holding that debt. While mortgage interest is tax-deductible, credit card interest is not. Credit card debt does not increase your overall wealth because credit card purchases are rarely long term investments.
Excessive credit card debt will negatively impact your credit score. Your credit score affects your ability to secure auto loans and mortgage loans. Reducing credit card debt releases resources to be used for more long term investments.
What Is a Strategy for Payoff?
You need to list and compute your total credit card debt and your total monthly payments. You need to really know what you owe overall and what your total monthly obligations are. Then you need to decide on a plan.
Credit Card Payoff Options:
- Begin immediately by paying more than the minimum payment.
- Begin to strategically increase your payment to pay off the lowest balance credit card first. Then add that payment amount in addition to what you are paying the next lowest balance. Repeat this pattern until you have eliminated your credit card debt.
- An alternative option is to target the credit card with the highest interest rate first. Once that is paid in full, target the card with the next highest interest rate and so on until you have eliminated your debt.
- If you are overwhelmed by the amount you owe, consider getting a personal loan to consolidate your debt leaving you with only one monthly payment. Do your research and you might be able to reduce your overall interest and lower your monthly payment obligation.
- If you are really disciplined, a 0% interest credit card could work well. Look for one that offers 0% interest for 15-18 months. Consolidate and work hard to eliminate the debt.
- There is the option to seek some form of debt relief. Be aware, though, this path can come with liabilities. There are nonprofits that will negotiate with your creditors for you. It can involve debt consolidation or debt reduction. You may have to pay a monthly fee for this service. Your current accounts may be closed and you may not be able to open new accounts for a period of time.
- Bankruptcy offers options for eliminating or restructuring debt. A chapter 7 bankruptcy will wipe out unsecured debt. But do your research before making this decision.
Chapter 13 bankruptcy restructures your debt over 3-5 years and may allow you to retain some assets. Once bankruptcy is filed, your credit score may improve only because your debt is eliminated. However, the bankruptcy can remain on your record for 7-10 years. Even with bankruptcy, student loans and tax debt are not usually eliminated.
- You could also consider debt settlement as a way to reduce and/or eliminate credit card debt. Debt settlement is when the creditor agrees to reduce your debt to something you feel you can afford. Usually, you hire a debt settlement company to negotiate terms with your debtor. While this may sound like a good idea, it isn’t always an option and there can be repercussions. Before deciding on this option, do your research.
Why Should I Pay Off Credit Card Debt Quickly?
You can save substantially by paying off credit card debt early. It is not a good plan to pay the minimum required payment each month. If you look at your statement it will tell you how long it will take you to pay what you owe by paying only the minimum required payment. Your statement also includes what will be your total cost if you only pay the minimum requirement. For example–a $15,000 balance at 21% interest will take you 51 months to pay off. During that time you will pay over $770 in interest. Do you really want to make that large a donation to the bank holding your credit card debt?
How to Establish Planned and Disciplined Spending
You have begun working toward credit card elimination. What now? You need to know how you got to where you are. Then:
- Plan your spending ahead of time
- Make a workable budget and follow it
- Limit the number of credit cards you have
- Pay credit cards off each month
- Consider using a pre-paid credit card until you become more disciplined
Eliminating and avoiding credit card debt requires having long term goals and exercising self-discipline. However, the long term payoff is worth the effort. Knowing you have a problem is the starting point. Consulting with professionals who can guide and support you in your quest for financial stability can set you on the course to success. The people at Tax Crisis Institute are there for you.
Tax Crisis Institute has been a tax relief leader for over 30 years. When you work with the Tax Crisis Institute, we’ll make sure you don’t pay anything more than you owe!
Call Tax Crisis Institute today for a FREE consultation!