Dallas Bankruptcy Attorney:
STRATEGIES FOR COPING WITH CREDIT CARD DEBT
Recently I read an excellent article by Laura Coffey on MSN.com discussing strategies for reducing credit card debt. As a bankruptcy attorney, I meet with clients everyday that are struggling with repaying high interest credit cards, and repaying these types of loans can be an uphill battle. The average interest rate on credit cards is 14.9 percent, but interest rates of up to 28 percent are not uncommon. At 28 percent interest a credit card balance is doubling every three years. For many debtors, this makes repaying their debt nearly impossible.
Ms. Coffey suggests the following strategies for reducing personal debt:
1. Know how much you owe. Collect each of your bills with outstanding debts including all credit cards, mortgage, student loans, auto loans, personal loans, and bank loans. Create a list of all the creditors with monthly payment amount, balance, interest rate, and credit limit for each. Verify the payment due dates and the status of the account.
2. Prioritize which bills to pay first. If you can’t pay off all your monthly bills, first pay the bills that are a necessity for health, shelter, basic groceries and basic transportation. Then pay the secured loans such as your car loan. Payments on unsecured loans, such as most credit cards, should come last in these critical situations.
3. Obtain a free copy of your credit report and review it. It may contain an error that is creating a lower credit score that is leading to higher interest rates on your loans. If correcting the error results in a higher credit score, contact your creditors to make sure they know about your improved score.
4. Contact your creditors to negotiate lower rates. The less money you pay in interest, the more money you have to pay off your bills. If you are in danger of missing a payment, contact your creditors as soon as you realize you have a problem. They may be willing to work out a payment plan, lower your rate, or lower your monthly payment. Explain that you are in debt, the steps you are taking to repay it, and what you can pay today. If you request a lower interest rate and get turned down, politely ask to speak to the supervisor and ask again. Document all conversations, including whom you spoke with, and the date, time, and the results.
5. Pay more than your minimum. Your minimum payment is usually only 2 percent to 5 percent of your balance. At this rate, it will take many years to pay off your debt. In fact, your credit card bill now shows exactly how long it will take. You may be surprised about how much you will pay in interest payments by paying just the minimum payment each month.
6. If you have multiple credit cards with outstanding balances, focus on paying off the card with the highest interest rate first. Continue to pay the minimum on your other cards until the card with the highest rate is paid off, and then focus your effort on the card with the next highest interest rate. Keep your oldest credit card accounts open and occasionally use them to buy a magazine or a movie ticket — just pay it off each month. This may help improve your credit score.
7. Check into transferring your balance to a card with a lower interest rate. If your rate is above 15 percent, it could pay to transfer the balance for that card to one that offers 0 percent APR for at least 12 months for balance transfers. To take full advantage of this 0 percent interest, pay as much as you can above the monthly minimum. Only use this card for the balance transfer, not additional purchases. Pay attention to the balance transfer fee. At the beginning of 2009, the industry standard for a balance transfer fee was 3 percent; now several issuers have increased that fee to 4 percent.
Some people have so much credit card debt that they cannot repay their debt, even following these rules. For those people, bankruptcy may be a good tool for obtaining relief from their debt. Not all people are eligible to file bankruptcy, so if you are struggling with repaying your debt you should speak with an experienced attorney. It’s also a good idea not to wait too long to get advice on bankruptcy. There are limits on how much debt a person filing Chapter 13 bankruptcy can have at the time they file. If you wait to file bankruptcy and your debt continues to grow due to interest and fees, you may find that you are no longer eligible for Chapter 7or Chapter 13 bankruptcy.
(Source: msn.com)
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