How to Pay Off Excessive Credit Card Debt

Relying too much on credit to get by has left many people in a position where they are now struggling to catch up. Credit card debts pile up and minimum payments increase. This can cause problems when your payments start to exceed what you can afford to pay in any given month.

In order to avoid problems you need to eliminate debt as quickly as possible. Ideally, your debt payments should not be more than about 12% of your monthly income. If you spend more than 12-15% of your income on credit card debt each month, then you need to take steps to reduce your debt load before it becomes an issue. You can do this through budgeting, debt consolidation or credit counseling, depending on the specifics of your situation.

For example, if you spend more than 12-15% of your income on credit card debt, but you have a large amount of free cash flow left over each month once you’ve paid your bills and covered your regular expenses, then you can use a debt reduction budget strategy to reduce your debt. With this strategy you devote all of your extra cash each month to making extra payments on your credit card debts. You want to eliminate one debt at a time, since this is more cost efficient. You can start with your highest interest rate debts first for the most savings or your smallest debts first if you need to build cash and momentum.

If you don’t have enough available cash flow to eliminate your debts effectively, then the next option may be a debt consolidation loan or balance transfer to a low interest rate card. This allows you to combine multiple unsecured credit card debts into a single low monthly payment. What’s more, since the debt is consolidated loan at the low interest rate, you can often get out of debt faster even though you pay less each month, since the finance charges don’t build as fast. You need to have good credit scores in order to qualify at a low enough interest rate to provide the benefit you need.

If you don’t have good enough credit, you can end up making your financial situation worse. You also need to know that balance transfer offers usually have a 3-5% surcharge of the balance you are transferring and that gets added on to your debt. So let’s say you have $5,000 debt that you want to transfer – the fee to do so would be between $150 and $250. Also you need to look at if the balance transfer rate has an expiration date. Many cards will only allow you to have the low interest for 6, 12, 18 months.

If you have a low credit score or even just a fair credit score and still want to look into consolidating debt give a call to a credit counseling agency and ask about enrollment in a debt management program. All advice and analysis of your situation should be FREE of charge and there should be NO hard sell. These programs are designed to allow consumers to consolidate debt without credit scores being a factor for qualification. You can have bad credit and still consolidate your debts successfully. What’s more, successful completion of a counseling program may help improve your credit in the long-term.