Eliminate Credit Card Debt in 2010Wednesday, December 30, 2009

Consumer Credit Counseling Service of Greater Atlanta Offers Tips

ATLANTA, GA. -- Another new year is on the horizon and many of us are already thinking about the positive changes we want to make in our lives in 2010. Some people are planning to eat healthier and improve their physical fitness; others will vow to spend more time with family and friends. Topping the list of resolutions for many consumers will be paying off credit cards and getting out of debt.

"Many consumers use credit cards without considering the long-term impact it can have on their finances," says Mechel Glass, director of education for Consumer Credit Counseling Service of Greater Atlanta (CCCS). "Interest and finance charges add up fast, and for consumers making only minimum payments or who have even a single late payment, rising balances can quickly outpace their ability to pay."

The average household now has credit card debt of more than $8,300 (Nilson Report, April 2009). If you have an interest rate of 18 percent and make just the minimum payment toward this debt each month, it will take you 47 years to pay it off. In addition to the $8,300 principal, you will pay an additional $23,296 in interest. Your $8,300 in purchases will cost you $31,596. That assumes that you do not use the card to make any additional purchases.

Just like every other resolution on your list, eliminating credit card debt requires focus and commitment. CCCS offers the following tips to help consumers:

Stop using credit cards. It may seem simple, but if you are used to buying everything on credit, it is a tough habit to break. Cutting up your credit cards is one way to ensure you will not use them. Another is to secure your cards in a safe deposit box at your bank or other hard to reach location to make impulse purchases much difficult. Before you make any purchase, ask yourself "Do I really need this? Can I pay for it with cash?" If you answer no to either question, skip the purchase. Ideally, only use credit as you would cash -- when you know you can pay the bill off on-time and in-full.

Resist the temptation of credit card offers. Open your mailbox on any given day and there is likely to be an offer for another credit card. Shred these offers without opening them to eliminate the temptation of teaser interest rates and consolidation offers. You can further reduce these offers by requesting that your name and credit information not be provided to financial institutions. You can do this by calling 888.5.OPTOUT (888.567.8688) or online at www.optoutprescreen.com.

Create a repayment plan. Look at all of your credit card debt and make a plan for how you will pay off the balances. While you need to make at least the minimum payment on all of your cards, prioritize the order in which you will pay off the cards. You may choose the card with the highest interest rate as the one to pay off first. Let's say you have a small balance on a couple of cards. Paying off those accounts first may provide you with a sense of accomplishment and help keep you on track. Document your plan to help you stay focused. As each balance is paid, redirect the money you were spending on that card to reduce the balance on another.

Pay more than the minimum. When you make a purchase with a credit card and make only minimum payments, repaying the debt can take years or even decades. It is not uncommon for consumers to pay three times the original purchase price by the time you factor in interest and other charges. On an $8,300 debt, if you pay $166 a month, it will take you 7 years and 10 months to pay off the balance and you will pay $7,156 in interest. Increase your payment to $300 per month and you will pay it off in just 3 years and pay $2,503 in interest. Use bonuses from work or other unexpected gifts of money to reduce your credit card balances.

Cannot give up credit cards altogether? If you cannot give up using credit, be sure to use it wisely. Limit yourself to two or three cards and choose those with the best terms, including low rates, no annual fee, and reasonable interest terms, such as a 25 day grace period before you begin paying interest on a purchase. Be sure to read and understand the terms of your credit card agreement--be aware of hidden fees that might impact you.

Don't hesitate to seek help - Remember, you don't have to solve your financial problems alone. Consumer Credit Counseling Service has trained and certified credit counselors who offer budget and credit counseling confidentially - and free. CCCS is a nonprofit, community-based organization and a member of the National Foundation for Credit Counseling (NFCC). For more information, call 800.251.2227 or visit us online at www.CredAbility.org or www.CredAbility.org/es.

"Using a credit card is like taking out a short-tem loan," said Glass. "Minimize your charges and make your payments on time to avoid having this short term loan become a long-term financial and credit disaster."