from the publishers of: Verywell, Real Simple, EatingWell, Shape, Parents, Health and Allrecipes
For more than half of card-carrying households, plastic is a mixed blessing. If you’ve racked up a large credit card debt, this convenience can seem more like a curse. To get back on track, try these effective ways to reduce your debt.
Tackle the worst first. If you have an account that charges 20 percent interest and another that charges 12 percent, pay off the costlier account first. However, you shouldn’t look to your retirement savings as a source of cash. If you do, you’ll lose a hefty chunk of the money to federal and state taxes and an early-withdrawal penalty, and you could jeopardize your future financial stability.
Tell your creditors that you’d like to set up a repayment plan. This shows them that you’re taking responsibility for your debt. At the same time, try to negotiate a better deal. Some lenders, for instance, will freeze interest on outstanding balances in return for automatic monthly payments.
Track all your expenditures until you have a clear picture of how much you’re spending on nonessentials. It’s a time-consuming task, but a key step in taking control of your financial life. Add up your bills, factor in what you owe and measure your debt load against your income.
Sound easier said than done? Start by cutting up your credit cards (though you might wish to keep the lowest-rate one for emergencies). Instead of using plastic for purchases, stick to cash or a debit card.
Forcing yourself to make drastic lifestyle changes may be setting yourself up for failure, so create a plan you can live with (while remembering that the more changes you make, the sooner you’ll be back on track). Consider getting moral support through an organization such as Debtors Anonymous, which sponsors weekly meetings nationwide for people with spending problems. Their main goal is to help people “live without incurring any unsecured debt, one day at a time.”
Credit-reporting agencies collect information on how you’ve handled bills in the past and how much you owe today. They make that data available to lenders, who often use it to decide whether you’re creditworthy. What’s done is done, so don’t expect to erase a missed payment. But creditors can make reporting mistakes, and if there are some on your report, you have the right to correct them. To check the accuracy of your credit history, contact a reporting bureau for a copy of your latest report.
They’ll charge you, and probably won’t provide any genuine help. Worse, many are costly scams.
Most cities in the United States have debt-counseling agencies that will lay out a debt-reduction plan and negotiate a repayment schedule with lenders. Often, these services collect a percentage of the repayment from the lender and charge clients little or nothing in fees.