Sunday, June 28, 2009

Chip, Chip, Chip Away

At this point, you have made the necessary phone calls to lower your interest rates and even to pay off your balances "at pennies on the dollar." The latter may not be possible for you, but the former, the lower interest rates, are certainly possible and, in many cases, essential to getting yourself out of debt in a reasonable amount of time. Time truly is money when it comes to debt repayment.

How many credit cards do you have? How many of them have outstanding balances? You will see that some of your cards have lower balances than others. Which card has the lowest balance?

Your next assignment is to make a list of all of your credit card balances. Write the list from lowest balance to highest. It doesn't matter how many cards you have at this point. The goal is simply to get this list on paper. And actually the grand total of your credit card debt isn't very important at this point, either.

Right now, we simply want to get a list on paper so you see what you are dealing with on a card-by-card basis. Ideally, we want to train your eye to go to the top of this list where the lowest balance appears. This balance will get the majority of your attention and money until it is paid off. You will pay the minimum on the other balances, but you will put as much money as you can toward the card with the lowest balance.......until you see a balance of zero! Of course, you will not be using this card (hopefully you will not be using any of the cards - you can't get out of debt by debting).

Once you pay off the card with the lowest balance, follow the same process for the card with the second-lowest balance. Continue to pay the minimum on the others, but now put as much money as you can toward this "new lowest balance card." And here's some good news - put the amount of money that you paid on card #1 on this card plus as much other money as you can.

Ultimately by doing this, you will accelerate the pay off of this card. In other words, the more you can put towards the balance, the faster you will pay it off. That's common sense, but many people don't realize it, nor do they discipline themselves to stop using their credit cards.

Keep this process going until all of your balances are paid off - whether you have two cards, five cards, ten, twenty, less, more.

Remember that it takes about twenty years to pay off a credit card with a $2,00 balance at an interest rate of 18%. By following the system listed above, you will cut years off your debt!

Wednesday, June 17, 2009

"Hot On The Heels" Of my Previous Post...

Hi All,

If you recall, last time I addressed the need to call your credit card companies and negotiate a reduced interest rate. Well, yesterday's "New York Times" had what I found to be an interesting and inspiring article for anyone facing difficult economic times and especially for those struggling with credit card debt.

In an article titled "Credit Bailout: Issuers Slashing Card Balances," writer David Streitfeld states that "credit card companies are increasingly doing something they have historcally scorned: settling delinquent accounts for substantially less than the amount owed."

Streitfeld cites a gentleman from Chicago named Edward McClelland who reportedly had received several phone calls from a credit card company, regarding a "$5,486 balance." This time, Mr. McClelland had a proposition for "big business." Specifically, McClelland "proposed paying half" of this balance.........and the account representative replied, "It's a deal" at which point, Streitfeld writes, "the matter" was considered "even."

Apparently, credit card companies and banks are becoming more responsive to the plight of many Americans during this recessionary period. No, they are not, all of a sudden, becoming philanthropic and good-natured, but it seems that they are becoming more open to negotiation.
With delinquencies rising, they realize that some money is better than no payment at all. In the article, Streitfeld cites a Federal Reserve report which states that "6.5 percent of credit card debt was at least 30 days past due in the first quarter, the highest percentage since it bagan tracking the number in 1991. The amount being written off was also at peak levels."

Streitfeld continues that not all creditors are on board with this new policy, but the American Bankers Association, "acknowledges that settlements are becoming more common."

Unemployment is now more than nine percent and is likely to rise. Frequently, jobs are the last things to come back during an economic recovery. Thus, as jobs continue to decline, credit card debt and the inablilty to pay will increase.

On a positive note, we now know that there is some "wiggle room"; the potential for negotiation exists. If you are struggling with debt, make that call. I beleive it is better to be proactive and contact the card company yourself than to wait and hope that the company will call and "make you an offer."

Re-read my previous post "Call...And Save!" with regards to negotiating a reduced interest rate. Read Mr. Streitfeld's article in its entirety in the June 16 edition of "The New York Times."

Also, I encourage you to read my blog every week.

Thursday, June 11, 2009

Call...And Save!

Alright, we are beginning to make some headway. We are becoming aware of our spending patterns and we are reducing (or eliminating) our use of credit cards. We are becoming proactive in our quest for debt freedom!

Now, it is time to "slay the dragon" (so to speak). Chances are, the interest rates on your credit cards are quite high. They don't have to be. It's time to call the credit card companies and negotiate a reduced rate on those cards. If you look at the back of your credit cards or on your statements, you will find a toll-free phone number. Call it and speak to the representative. Get your interest rates reduced!

This might take a little persistence on your part. That's not a problem since you are determined to get out of debt. If the first representative says he or she cannot help you, ask to speak to a supervisor or manager. Keep going up "the chain of command" until you are offered a satisfactory rate, one that is significantly lower than your current rate.

You need to do this for each of your cards. It might take some time, but it is worth the effort...and money that you will save!

Until next time........

Wednesday, June 3, 2009

"Cut " The Plastic (Probably Not What You Think)

Last time, I wrote that we should all add up what we owe on our credit cards. This gives us an idea where we stand presently with regards to debt. Many people have only a vague idea of how much they owe. I remember back when I was deep in debt, I frequently forgot how often I used my credit cards and I had many of them. Ultimately, I didn't know how much debt I was carrying until I finally built up the courage to sit down and add up the balances on each and every card. My best recollection is that I had as many as fourteen credit cards at one time and I owed on most of them.

I felt terrible when I finally realized that I owed several thousand dollars. However, shortly thereafter, I also realized that knowing the exact amount was crucial if I were to stop this terrible trend of unnecessary debting. At first I was guilty, but then I was empowered.

So I suggest that you add up those debts for your benefit. This is not to make you feel guilty or even angry. This is meant to be a "Wake-Up Call." Hopefully, it inspires you to start changing your habits, even if it's just little by little at first.

Now that you know exactly how much you owe, start recording what you buy for the next week. I'm not saying to change your buying habits necessarily, at least not right away. But notice what you buy and more importantly how you pay for it. For example, do you stop for coffee and a muffin every morning? three mornings a week? Do you pay cash? Or do you put it on a credit card? Do you realize that you're doing it?

This is not to condemn; it's to make you aware. So for the next seven days, take a small pad of paper with you and each time you buy something (no matter how relatively inexpensive it may be) write down what it is, how much it costs, and how you paid for it. If you spent cash, write "Cash" next to the purchase. If you put it on a credit card, write "cc" next to it.

After a week, review how you purchased. If you notice that you used credit cards
less often than you usually do, then you are becoming aware that you don't need to use credit cards so often. I suggest that keep that pad with you for at least another week or two and do the same thing.. Remember we are now establishing positive habits and breaking bad ones and it takes time. This also reaffirms/solidifies what you did in week one. In the process, you are convincing yourself that change is possible and that, in fact, it is happening. You'll also see your debt amounts decrease over the course of several months once you drastically lower the number of times you use credit. You have "cut" your use of plastic!!

If, on the other hand, you notice after one week that you used your credit cards as often as you usually do, don't give up. You may have been using credit cards so habitually that it can take a while longer for you to break the habit. Again this is NOT a criticism. Maybe instead of thinking about this as a seven-day experiment, think of it as a ONE-DAY experiment - today. Convince yourself that you will pay cash for EVERYTHING you buy today. And buy what you usually buy for that day - keep it natural. Then notice that you succeeded TODAY. Congratulations!! Now do the same thing tomorrow...and the nex day...and the next day, etc. Soon, you'll notice that a week went by and either you used the card rarely or ideally NOT AT ALL. You, too, have "cut" your use of plastic. Keep doing this day-by-day and see the results!

I'd love to hear from you! Please feel free to comment or ask questions.

Until next time, be positive and see yourself as DEBT-FREE!