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Strategies for Reducing Your Debt

 

November 24, 2009

You DON’T Have To Move To Lincoln, Nebraska To Get Your Credit Card Bills Under Control…Here Are Six (And 1/2) Strategies That You Can Use To Reduce Your Debt!

We Americans LOVE our credit cards! But for many of us, this relationship has become a strained one at best.  By the end of 2008, the average credit card balance per household in America was $8,329 and the average balance per card was up 11 percent over the previous year to $1,157. 

Here are two reasons to start managing your credit debt now: If you should ever not pay a credit card balance, it stays on your credit record and can prevent you from getting a car loan, mortgage or even a department store credit card. And if you declare bankruptcy, it will be on your credit record and affect your ability to borrow for up to 10 years.

To help you stay ahead of the debt game, here are six (and a 1/2) strategies you should consider:

1. Pay more than the minimum payment each month if you ever hope to pay off your credit card debt.

You may already know this (or have experienced this), but if you only pay the “minimum payment” each month, your bill could continue to INCREASE, even if you completely stop using your card. This is called “negative amortization” where you think you are paying on your debt but the additional fees and finance charges are more than the minimum payment. The bottom line is: Pay more than your minimum or you will eventually be in debt over your head.  

2. Use a system for credit card debt reduction.

People with debt problems love to ignore them. With online banking and automatic payment options, there is no excuse these days for missing a bill or being late with a payment and being assessed a late fee. If you feel you can’t manage all your bills by pen and paper, there are several good software programs available for keeping track of your financial records. 

3. You can negotiate with your credit card company.

Contrary to what you see on TV ads, you do not need to be an attorney or other professional to negotiate with your credit card company (You will need patience and persistency though). The rising amount of consumer debt in this country has made creditors realize that if they need to be more understanding of their customers’ needs if they hope to get any money back. If you file bankruptcy they are only going to get pennies on the dollar, so they are willing to make deals.

Here are some examples:

First Option: You tell the company's collection department that you're having financial difficulties and need to have your interest rate lowered, simple as that. They say, "What can you manage?" You tell them. Don’t expect them to lower your interest rate to 0% but they could cut your rate in half or more.

Second Option: A different credit card company has offered to pay off all your old credit card debt at nine percent (or lower) if you switch. Call your companies where you have a balance and tell them the deal you've been offered; ask if they can do better, and go with whoever is lowest.

NOTE: You can also negotiate with many of your other creditors, not just credit card companies. For example, if you owe medical bills, you may want to contact the accounts payable department and ask them if they will take a reduced payment if you pay the negotiated amount immediately (assuming you have the money available). Many times businesses are happy to take the reduced payment even if you cannot pay the full amount. The key to maintaining control is staying in contact with your debtors. No matter how much you ignore your bills, they will not go away.

4. Write letters to each of your creditors acknowledging your debt and the situation, and tell each one when you can begin repayment.

Usually credit card companies get ignored and end up sending delinquent files to a collections agency. So they'll actually appreciate your openness in contacting them and may be more understanding of your situation. Proactively dealing with your debt problem rather than hiding will not only help your financial problem but make you feel better about yourself.

5. Keep track of what you are able to pay each creditor each month.

If you are not able to pay the full amount of your credit each month, you still should still pay something to stay on top of it. You should work off a written budget so you know exactly where you stand.  Some experts suggest that you divide your monthly debt budget by the percentage of each bill makes of the total and pay that amount. Here’s an example: If you owe a total of $1,000 and one credit card is $800 and the other is $200 and you only have $100 available to pay for that month. You should pay $80 on the $800 balance, and $20 on the $200 balance. This way you are reducing each debt by the same percentage.  

6. Be tough, don’t be intimidated.

No matter how forthcoming and honest you are, some creditors have been taught to be mean and downright nasty. Hang in there and don't let this tactic intimidate you. 

 6 ½. You can always move To Lincoln, Neb. (Just joking!)

If you believe surveys, where you live may have a bearing on the amount of debt you owe. According to a recent survey in Men’s Health Magazine, Lincoln, Nebraska has the lowest credit card debt in the nation. You’ll want to avoid Anchorage, Alaska because according to the same survey it has the highest debt.

No matter where you live, controlling your debt burden is vitally important to maintaining your financial health. Along with these debt-elimination strategies, you should always consider ways to reduce your tax bill. PRO-TAX will be happy to assist you in reducing your taxes to the absolute minimum allowed by law. Plus we will review up to three years previous returns to see if you overpaid the IRS for some reason. Call us today at 1-800-809-2829 and press #5 to set up your free tax reduction consultation.