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Guide to Paying Off Credit Card Debt

April 27, 2009 by PlasticEconomy.com · Leave a Comment 

There are a number of people with credit card debt make minimum payments every month without thinking about actually paying the debt off. The first step is to develop a sincere interest in credit improvement and debt reduction. From there you can create a workable plan that suits your personal financial situation.

Basic Debt Reduction: An Overview

Large amounts of debt can be overwhelming. You may feel like you will never get out from under the mountain of debt you’ve accumulated. Organization can be helpful because once you sort things out and analyze them it becomes easier to manage and reduce your debt.

For example, you will need to list all your creditors and how much you owe. Keep the phone numbers and addresses of your creditors close at hand so contacting them is easy. Next consider which accounts you should pay in what order. Another important factor is the amount of money to pay each one. Breaking the process down into small steps can help you create a budget that suits your life.

Figure Out How Much You Owe

A good place to begin when creating a debt repayment plan is calculating the amount of money owed and who the money is owed to. You will need a current copy of your credit report to obtain this information. On your credit report will be listed each creditor and how much you owe each one. Just in case all accounts are not listed also look over current bills you’ve received in the mail from creditors which may not have been reported yet.

It helps to list the information on one sheet of paper so you aren’t buried in paperwork. Make a few copies of the completed document in case you lose the original. On the page you will want to list the following.

• Creditor name
• Total amount of money owed
• Minimum monthly payment
• Interest rate

This information can be done in a three-column format. Your entries may look like:

• Visa $3,040 $126 9%
• Belk card $9,420 $366 11%
• SunTrust Bank personal loan $23,000 $490 6.6%

This is of course just an example as your list will vary depending on your individual financial situation. Keeping your list close at hand when paying bills can really help you stay organized and boost your chances of debt repayment success.

List Your Creditors by Priority

After making your detailed debt list, the next step is deciding which creditors get paid when and how much. A good rule of thumb is to pay off the accounts with the highest interest first. Listing your debts in order from high to low interest rates is recommended.

Another way to repay debt is focus on the smallest accounts first. The reason to do this is because smaller amounts of money can be repaid faster. Once you’ve got the more manageable credit accounts taken care of you can tackle the big ones. The method of prioritizing your creditor you choose will depend on your personal debt profile.

Develop an Affordable Repayment Plan

It is extremely important to tailor your debt repayment plan to suit your finances. Figuring out how much to pay towards your debt can be done by determining the amount of discretionary income you have. Discretionary income is the money left over for spending after you’ve paid all your necessary expenses.

First, add up the money coming in each month from sources like your wages, tips, child support, alimony and any other sources. Subtract your monthly expenses from this sum. Monthly expenses include anything deemed necessary like rent or mortgage, utilities, food, car payment, insurance, medical care, current debt payment and anything else you absolutely must pay. The amount left over equals your discretionary income.

Now that you have a clear picture of how much is left over you can apply the amount you choose towards your unpaid debt. Rather than applying the total amount subtract the amount you know will probably be spent on non-necessities that are still important to you. What’s left can be divided among your creditors as you see fit.

Create Your Repayment Strategy

With all the numbers in front of you, it will be easier to complete your debt repayment plan. Apply the money you’ve earmarked for debt repayment to the creditors you determined as high priority. This will involve making not only the minimum payment but also paying the amount you determined you can afford to get the debt paid in full. Once the debt is paid go down the list and apply the extra funds to the next creditor. You should of course continue paying minimum payments on all other creditors.

Launch Your Debt Elimination Plan

Suppose you’ve allotted $200 monthly for debt repayment. Start with the number one creditor on your priority list, and pay $200 in addition to the minimum payment. Continue to do this each month until the account is paid in full.

The next step is to apply the $200, the previous minimum payment of the now-paid debt and the current minimum payment of the next debt on the priority list. As you move down the list of creditors you will free up more funds to put towards your debt.

Eventually, depending on how much money you’ve decided to put towards your debt and how much debt you have, you can be debt-free and stay that way. The rewards of eliminating debt include more money for savings, a better credit rating and reduced financial stress. So don’t delay, create your debt repayment plan and get on the road to financial stability.

Getting Rid of Collections

April 19, 2009 by PlasticEconomy.com · Leave a Comment 

When lenders analyze your credit report, collections listed can affect you in a negative way. The older a collection is, the less it will hurt your credit score, however collections do stay on your credit report for a whole seven years. During this time anyone who pulls your credit report will see the collection account.

The recommended course of action for this common credit problem is to remove the collections from your credit report. There are several ways to do this depending on your individual financial situation and why the collections are listed in the first place.

You may notice debts that are not yours listed on your account. This happens more often than you might think and it’s possible to have these erroneous listings removed. You can file a dispute with the credit bureau and request they remove the incorrect listing from your report. Another thing you can do is ask the creditor to validate the debt, which requires them to prove the debt is owed by you. Within a certain period of time if the creditor does not respond or cannot validate your collection it must be erased.

After seven years, collections are supposed to be removed from your report. The FCRA states collection accounts can only stay on your report for this long. However, some creditors will try to keep the debt on your report longer by making it look as if the collection went on your account later than it really did. This is called re-aging an account and can keep the collection on your credit unless you dispute it with the creditor and credit bureau.

Any documentation you have proving the true age of the debt will be helpful.

Another way to have collection debt removed from your credit report is by disputing after your original collector has sold your account. Because collections are sold and transferred to other agencies, the agency on your report may not be the one trying to collect the debt. It is possible to have items that have been switched from one collector to another removed by disputing the account.

Finally, you can pay the collection accounts then write to request the paid accounts be marked paid in full or deleted from your report.

Payday Loan Alternatives

April 19, 2009 by PlasticEconomy.com · Leave a Comment 

If you have an urgent situation and are in need of cash, there may seem like there is no other way than to take out a payday loan, especially if you have bad credit. However you should investigate other methods of obtaining the cash you need to prevent further financial problems caused by predatory payday lenders.

If the problem is money owed to a creditor or creditors, call them and ask for a payment extension. The vast majority of utility providers, cable television companies, Internet providers and telephone companies will give you extra time to pay if you need it. Even your credit cards may be able to be extended until you can pay.

Along with requesting extensions for bills that are due, you can raise money in a variety of different ways including working overtime if at all possible. Many employers do offer overtime to their employees so be sure to ask.

There are also a variety of jobs on the side you can take on. You may want to work a few hours each night somewhere other than your full-time job. It is also possible to turn your hobbies into cash. For example if you are a painter, knitter, woodworker or gardener you could take your hobby and make it a part-time business. Maybe you don’t have a hobby that can make quick cash, or the ability to work overtime or take on a second job.

In that case, you may want to ask your employer for the funds.  Some employers do offer pay advances to their employees, then take out a certain amount from each check to cover the advance. Speak to Human Resources if this is something you are interested in.

As a last-ditch effort you could borrow the money you need from friends or family, assuming a bank or credit union will not grant you a personal loan because of your bad credit. You may also want to consider pawning or selling some of your valuable items. Fine jewelry, antiques and electronics are items that can be sold for quick money.

It’s recommended you explore all your available options before turning to a payday lender for a loan with an extremely high interest rate.

Avoid Credit Repair Scams

April 19, 2009 by PlasticEconomy.com · Leave a Comment 

If you have poor credit it’s very possible you want to fix right away and with as little effort as possible. Most people don’t feel they have time to go through the steps associated with repairing their credit. Many people have bad credit, and are vulnerable to scam artists who promise to repair your credit quickly and easily.

It is important you don’t fall victim to credit repair swindles that take advantage of consumers with low credit scores.

The Credit Repair Organizations Act is a federal law that governs organizations who handle credit repair. These repair services are required by law to meet certain specifications and obligations to their clients. Always make sure any credit repair company you are considering complies with this act and follows all the federal guidelines.

There are ways you can tell if a credit repair service is a potential scam.

For example, you must be provided with a document called the Consumer Credit File Rights Under State and Federal Law. This document explains your rights, how you can get your credit report and how you can dispute information that is not accurate. Also, you should be given a copy of any and all contracts the company wants you to sign. Read them in detail before signing anything.

In addition, there are certain things the contract should clearly state.

Your contract from any credit repair service should declare how much you are charged for the credit repair, what kind of services are being done for you, the amount of time needed to provide the credit repair services, both the name and address of the service and a statement that allows you to cancel within the next 72 hours.  Also, you should not be asked for payment before the credit repair agency has performed their services.  Additionally, you should be aware that these companies cannot remove accurate information from your report. If they say they can, definitely steer clear.

When investigating credit repair companies you should know that you can do everything that one of these companies can do. The reason you may want to choose a credit repair agency is because the disputing process can become complicated and time consuming, with a a good agency able to take care of this for you.

Before finally deciding on a credit repair service, check their status with the BBB to make sure no complaints have been logged against them.

Considering Filing for Bankruptcy?

March 7, 2009 by PlasticEconomy.com · Leave a Comment 

Bankruptcy carries a bad reputation and it’s no wonder. Once you file for bankruptcy your credit is negatively affected. The chances of obtaining new credit for a loan or credit card are slim to none. While it’s true bankruptcy will be removed from your report in 7 years (or sometimes as many as 10 years) many creditors do ask if you have ever filed for bankruptcy and by law you are required to tell the truth no matter how long ago it was.

If you can somehow repay your debt without turning to bankruptcy you should. In addition to impacting your credit, bankruptcy can even impact your emotional health. Many filers feel regretful and embarrassed long after they’ve declared bankruptcy. So before you make the decision to file, consider some alternatives first.

Often creditors will be happy to negotiate a reduced payment or debt settlement with a customer considering bankruptcy. Even if you’re several months late this can still be achieved.

Another thing that can help you is consumer credit counseling. These agencies evaluate your debt situation and negotiate with your creditors on your behalf. You pay the credit counseling agency a lump sum every month rather than sending payments to all your creditors.

In some cases, bankruptcy is the best solution. For example, if you are so late on a payment that your wages are garnished, filing for bankruptcy may cease the garnishment. Another situation where bankruptcy may be appropriate is with high medical bills not covered under an insurance plan. If you are in dire financial straits bankruptcy may be your last resort and prevent court judgments.

Because every financial situation is different, what works for one person may not work for another. The information in this article is not legal advice, so if you’re considering bankruptcy you need to consult with an attorney. You may want to consult with more than one attorney before deciding who you want to use, especially if the initial consultations are offered free.

The right attorney will explain the bankruptcy process in detail, answer any questions you may have and give you honest advice about whether filing bankruptcy is recommended for your situation. It is important to weigh all the pros and cons of this decision as it is one that will affect your credit for years to come.

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