Credit Card Debt: You're in Control

By DoItYourself.com Staff

Credit card debt sneaks up on consumers.  At first, it is simply a card to use for gas and groceries – and maybe a little fun on the weekends.  One card becomes two, and then before you know it, you have 5 credit cards with $6,000 limits.  Sometimes, life has unexpected surprises and you must use credit cards for last minute auto repairs or doctor's visits.  “I'll pay it off next month” is the phrase you repeat over and over.  Before you know it, you have racked up $20,000 in credit card debt.

At some point, the weight of this debt will come crashing down like a ton of bricks.  It may be when you try to buy a car and find out your interest rate is sky high.  It's not because you don't pay your bills - you do - but because the limits are so high on your cards.  Or, you may apply for a loan at your local bank only to be denied because of your debt to income ratio.  At this moment, you realize something needs to be done, and fast!

So, where do you go?  How do you dig yourself out of this hole?  You will read and hear infomercials claiming there is only one way to get out of debt - call now, and for $59.99 you can be a millionaire tomorrow!  You would think if it was that easy, this company would not be selling something for $59.99.  You have options, but you must analyze your situation and confront it head on.

You may need to get a second job to pay off your debt.  It is never fun to work two jobs, but get creative!  A second job does not have to be flipping burgers at the local restaurant.  You may have a special talent that can earn extra money – from writing to training dogs.  You are only limited by your own imagination when it comes to making money.  You may have to swallow your pride, but that is much easier to do than staying awake at night worrying about bills.  Search the Internet, newspapers and ask friends if they know of anyone needing part-time help.  You can also offer your skills to businesses through the placement of ads.  If your company offers over-time, volunteer to put in “x” amount of hours per week.  You control whether you stay in debt or not.

If you own a home, financial options are available to paying off credit cards.  A home equity line of credit can be used to get out of a bind.  Often times, people turn to drawing equity out of their home before they get a second job.  This option is the most common way of paying off debt.  But you should also be aware that pulling equity out of your home has financial repercussions.  Several years ago, people refinanced their homes with interest-only programs because interest rates were low.  Now that interest rates have risen, families are confronted with mortgage payments double or triple what they were four years ago.  Before refinancing or applying for a home equity line of credit, analyze the long-term financial affects it will have on your life.

Debt management and settlement programs have become popular in recent years.  These two programs are not the same!  If you call one of these companies, you are bound to hear, “We can get you out of debt in five years!  Yes, you heard you heard us correct, five years!”  You should take the time to investigate each program before signing on the dotted line.  Debt management programs aim to reduce your interest rates while you make full payments on your debt.  The amount of money you owe the creditor is not reduced, but the lower interest rate allows you to payoff the amount faster.  Your credit cards may report that you are part of a debt management program to the credit bureaus.  While this may not lower your credit score, it may affect your ability to attain new credit immediately after signing up for the program.  On the opposite end of the spectrum is debt settlement.  No matter how a company dresses this up, it means not making payments on your cards until the credit card company is desperate to settle.   This is how they achieve “debt-free in five years” promises.  This program should be used as a last resort before bankruptcy.  Typically, the debt settlement company will have a service fee which must be paid before they negotiate with the credit card companies.  This means for four, six or ten months you are not making payments on your credit cards.  Obviously, this lowers your credit score substantially.  There are serious repercussions to this type of program, so investigate it thoroughly before agreeing to it.

A great option, but far less common, is borrowing money from a family member.  Don't we all wish we had a rich aunt or uncle!  If you do, consider yourself lucky.  They may loan you enough money to pay off your debt while you make payments reimbursing them.  Their “loan” will not appear on any credit reports, so you can simply go about your life.  However, this is the least common way to pay off debt.

Credit cards have risen in popularity over the last 10 years.  The result is that people of all demographics are receiving cards with high credit limits (after all, if you do not charge things, the credit card companies do not make money).  Being in debt is not indicative of you as a person.  Many circumstances, whether controlled or not, have put Americans in a tough financial position.  But before making a decision of getting out of debt, investigate all of your options.  You have ultimate control over how quickly you get out of debt.  The decision rests upon your shoulders.

© Doityourself.com 2006