Practically Speaking: Slimming Your Credit Card Debt

Getting out from under credit card debt can be overwhelming, seemingly never-ending, and down right depressing.  But it must be done!  What's the point of buying the whatchmacallit on sale if you're just going to charge it?  After calculating all that interest on top of the sale!sale!sale! price, you're going to be paying big!big!big!

Yeah, sure, you want the "points" for the whoseywhatsit.  If you truly pay your card off each month...in full...then that might be a good way for you to get something for free.  However, that's not the case for millions of people.  For anyone who's in that "millions of people" category, steer clear of the "credit card savings plan" for such things.  Pay off your debt and save for the thingamajig by putting your money in an interest bearing account.

Aside from the usual comments about not buying what you don't need, here are a few tips that will help you lower the debt you carry on those cards.

Don't Be Late!

Some fine print can boost your APR to 25% (or more) when a payment is late.  And then charge a $35 late fee, too.  Ouch!  If you find yourself in a position where your payment will be late, dial the number on the back of your card right away.  If it's a one-time thing and they know the payment is on it's way most companies will remove the fee and keep your rate where it is.

In Fact, Pay the Same Day

Making a payment the day you receive the bill instead of waiting until the due date, could save you 10 days in daily interest per month - the calculation typically used for credit card balances.  At a rate of 13% interest on $5,000 debt, that simple change in payment could save you over $150 a year.

Rate It

Normally I would recommend shredding every credit card offer you get in the mail.  In this case, however, I'm suggesting you save all those crazy offers for a couple of weeks and then get on the horn with your credit card company (or companies) and ask for a reduction in your rate.  List the better rates you got in the mail.  Threaten to move your business to another company if necessary - that usually does it.

Nix the Annual Fee

And while you've got them on the line, see if they will waive the annual fee.  Remind them of the offers you have in your hot little hands and that several of them have no annual fee.

Opt Out

Now that that's out of the way, opt out and keep out of trouble.  Visit www.optoutprescreen.com to get all the details and to opt out of getting those gazillion offers in the mail.  In short, this site, brought to you by Equifax, Experian, Innovis, and TransUnion, allows you to register as a person who no longer wants to receive credit card offers.  It protects your personal information from being given to companies offering credit and it keeps those offers from coming to you.  This could also help avoid identity theft and hey, it's good to save a forest or two!

Minimum Schminimum

Pay as much toward your debt as possible.  Yes, you need to have some money in the bank for an emergency but it's costing you a lot of money every month to have this loan out.  Go ahead and look at the "Finance Charge" item on your statement.  I know it hurts but think of what else you could be doing with that money each month.  I hear people tell me that it's not worth it if they can only pay an additional $50 extra a month.  Oh yeah?  Here's an example: Paying the minimum on a $5,000 balance at 13% interest and a $125 minimum payment will take just over 19 (NINETEEN) years to pay off.  That's right, check the math at www.bankrate.com.  However, just paying $50 per month more with a $175 payment, the debt is paid in full in just under 3 years.  16 YEARS difference!  Pay off that debt with every extra cent you have!

Don't Cash Out

Whatever you do, avoid using the cash advance option.  You will generally pay a processing fee (on average, 3% of the advanced amount) plus an APR on the cash transaction that will be even higher than the APR on the credit debt.  But here's the kicker, you'll have to pay down all purchases and interest before any of your payments will be applied to that cash advance.  Steer Clear!  If you really need the cash, call mom, your favorite auntie, go to your bank, hit the Coinstar machine.  Anything else!

Heather Montanaro: Money Correspondent:

Heather's column, Practically Speaking, published 3 times a month to Gather Essentials: Money presents practical advice for everyday living and provides insight on how to pair lifestyle choices with financial realities.

Heather Montanaro holds an Executive MBA from Northeastern University and has held senior positions with local technology and service companies.  Now she enjoys staying at home with her 2 young children.  She's made the adjustment from 2 to 1 incomes and enjoys helping others reach their personal goals as a Budget Coach.

You can find all of Heather's Practically Speaking columns at tag: budget coach

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