Will too Many Credit Cards Hurt my Credit Score?

While you may be worried that you have too many credit card accounts open, the truth is that there isn’t a magic number of credit cards that is “right” or “wrong”. With that being said, there are some important things to know about holding multiple credit card accounts at the same time.

The average credit cardholder has approximately 5 to 7 credit cards. This includes open and closed accounts. There is no cutoff number where we would tell you “You have too many credit cards,” because what we are more concerned about is your debt to credit ratio.

What Is a Debt to Credit Ratio?

Essentially, the debt to credit ratio means: how much of your total available credit (on all of your credit cards) have you used? In other words, if you have a total of $10,000 of credit available to you spread out over any number of cards and your current balances add up to $9000, you have a very high debt to credit ratio of 90%.

Why is this number important?

The reason why your debt to credit ratio number is significant is because it plays a big role in determining your credit score. Ideally, you want to keep your total credit card balances at 30% or less of the credit you have available to you.

You can have a really great debt to credit ratio with 10 credit cards (many people open cards in order to take advantage of different “points” systems), and you can also have a poor ratio with only one or two credit cards.

How Can I Improve My Debt to Credit Ratio?

While opening new credit cards would seem like the most logical strategy to increase your total amount of credit available, it is important that you don’t open multiple new accounts in quick succession.This will send up a red flag to credit reporting agencies because it may mean that you are borrowing money that you won’t be able to repay.

Try opening one or two new credit cards per year in order to gradually boost your total available credit. More importantly, make sure that you are paying your monthly minimums (or ideally, more) in a timely manner on a consistent basis. In fact, this is actually more important than your debt to credit ratio number. Your credit score is calculated by looking at a number of your financial habits, your income and your total debt. Approximately 65% of your credit score is based on how well you stay on top of paying your bills.

Additionally, your credit score will improve if you have a variety of types of credit. Credit diversity makes up about 10% of your credit score.

If you feel you have too many credit cards because the balances are way too high and you’re having trouble making payments, your problem lies in your debt to credit ratio rather than how many credit cards you have.

To reduce your total amount of credit card debt, you can choose one of many effective and proven methods. If you have already attempted to reduce your credit card debt and feel like you are drowning in debt you’ll never be able to repay – filing for New Jersey bankruptcy may be an option that you should consider.

Image: “Credit Cards” by Sean MacEntee – licensed under CC 2.0

I’m Being Sued for More Money than I Owe!

Is a debt from your past coming back to haunt you in the present? Although not ideal, sometimes it happens. Perhaps you weren’t making sound financial decisions at that point in your life and accidentally (or intentionally) ignored some past due notices until they just stopped coming.

It can feel like it’s easier to ignore bills when you don’t have the means to pay them. However, the end result is almost always going to be substantially worse than your original debt.

While it can take some companies awhile to take action on smaller debts, the bad news is that your (once) small-ish debt has had a load of time to compound upon itself, rolling around in interest rates, gathering late fees and potentially even picking up attorney’s fees. If your original lender or credit card company has hired counsel to address getting you to pay up, it is possible for them to tack their attorney’s fees on to the amount owed.

What can I do?

Your credit card company is hoping that you’ll get scared by the big number they’re asking for – as you should. If you receive a summons and complaint that says you owe double, triple or quadruple your original debt amount – now is the time to obtain counsel yourself.

How can I afford an attorney if I can’t even pay my debt?

Working with a New Jersey debt settlement attorney on a matter like this is highly unlikely to cost you thousands of dollars. In all likelihood, the right NJ lawyer will have the required negotiating skills to bring the amount owed down to a much more reasonable number – simply by making a few phone calls and/or sending some letters.

Your attorney can then work to coordinate a payment plan that is manageable for you so that you can pay off the (now much lower) balance. The lender/credit card company will almost always be happy to get some form of payment from you as opposed to nothing.

What will happen if my case goes to court?

If, by chance, your credit card company does not want to settle via your credit repair attorney, New Jersey courts will set up a mediation wherein the same kind of talks will take place. A court appointed mediator will work with you and your attorney, along with counsel for the opposing side, to negotiate a resolution that everyone can agree to.

The bottom line is: if you have been served with a lawsuit to collect a debt in a much higher amount than you originally owed, you’re probably not going to get out of paying at least part of the debt unless you file for bankruptcy. If you have the means to pay back the amount that your lawyer negotiates for you, you should do so in a timely manner so that your credit score doesn’t take an even bigger hit.

On the other hand, if you are completely strapped and cannot imagine even one dollar of your debt (and likely other debts that you owe) being repaid, it is definitely time to consider filing for a NJ bankruptcy. This will wipe out a significant amount of your total debt, leaving you much more financially stable, which will allow you to “start over” with a much cleaner slate.

 

Image: “Breaking into your Savings” by Images Money – licensed under CC 2.0

How to Tell if You’re Living Beyond Your Means

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The recent popularity of YOLO-based thinking (You Only Live Once) has encouraged many people to take life by the horns. Learning to stay in the present is beneficial for so many reasons. After all, everyone’s living on borrowed time, so really appreciating life’s little moments is a key factor in living a fulfilled life.

Some YOLO enthusiasts take the concept one step further, however – following a “Treat yourself!” mantra that goes beyond staying present and moves toward the idea that since you only live once, you might well “live it up.” This mentality can very easily lead to spending more money than you actually have on things that make you feel good – that new pair of shoes, the latest tech gadgets, getting your hair professional styled, a new car, etc.

Of course, you can find yourself living beyond your means even if you never knew what YOLO stood for until now. Even spending slightly more than you have over a period of time will eventually catch up with you. Regardless of how you’re spending too much, when you reach the point of no return, you’ll realize that you don’t want to spend the rest of your life digging yourself out of debt. THAT is definitely no way to live.

You might be wondering, “Do I spend too much?” It can be difficult to know for sure if you’re living beyond your means, especially if you haven’t hit any significant bumps in the road thus far. You’re house isn’t in foreclosure, your credit’s ok, you’re not late on your car payments, and there’s always enough food on the table. Even when it seems as though everything’s alright on the money front, there are still some signs that should send up a red flag to indicate that trouble is coming.

  • You have zero savings. Many Americans today don’t put as much effort into growing their savings as the generations before us did. The problem with this behavior is that no one really knows what their future holds. Your steady job may not last until retirement. You could become disabled or experience any number of truly stressful life events that will limit your income potential. Without any nest egg to fall back on, any hiccough in your life plan could have disastrous consequences.
  • You charge everyday items to a credit card. Things like gas and groceries should be factored into your monthly expenditures and paid for with real money. If you regularly pay for necessities by credit card, it’s time to take a harder look at your spending habits.
  • The balances on your credit cards are headed up. Ideally, you should be working to pay down anything you’ve charged to your credit card(s) recently, which should only be more expensive purchases. If, instead, you find that your credit card balances just keep rising, you’ll be heading for bankruptcy sooner rather than later.

Get back within your means by cutting back on unnecessary spending now. Take a good hard look at all of your monthly bills and expenses compared with your monthly income. If you can find several areas to reduce spending – great! On the other hand, if literally all of your monthly income is earmarked for life’s necessities – you may need a professional’s help to get back on track.

Image credit: Cafe credit

I’m Disabled and in Debt: Can I be Sued for the Money I Owe?

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Maybe you were plugging along with a solid debt-snowball plan that was going swimmingly, effectively reducing your overall debt bit by bit before you became disabled. Disability can happen to anyone, at any time, and can come in an endless number of forms. Whether you were in a vehicular accident, had a serious fall, or if you have been diagnosed with a serious illness or disease, the effect on your finances can be simply devastating.

Regardless of the cause of your disability, if you also have a large amount of debt you can’t repay, you may be feeling helpless and afraid of what will happen next. Will the credit card company sue you? Will you go to jail? Will your family be responsible for your debts?

The bad news is that you can be sued for unpaid debts, however, it’s the best kind of bad news you can get. If your disability has caused you to be unable to work, you probably don’t have very much money in your bank account. The good news, then, is that you have no money for your creditors to take, even if they do sue you. You don’t have to worry about going to jail, either, unless your creditor is your ex-spouse and the unpaid debt is child support. Even then, a change in life circumstance (your disability) can be entered into your family court case, which will reduce your support payments while you are disabled. And your family will not be responsible for debts taken out in your name only.

What if I collect Social Security disability benefits?

If your creditor sues you for a debt you owe them, they can have your bank account levied if you refuse to pay the judgement amount (your refusal would make sense if you actually can’t pay it due to lack of money.) However, some debtors do find themselves with at least some money in their bank accounts if they receive payments from Social Security due to their disability. The good news here is that disability funds are exempt from collection by creditors or collection agencies.

For those of you who are receiving disability benefits, it is of the utmost importance that you keep your disability money distinctly separated from any other monies you may receive. It is best to open a new bank account that will only receive deposits from Social Security. If you commingle your Social Security funds with any other funds that may trickle in while you are not working (gifts from family, yard sale money, proceeds from selling stuff on eBay) – you can risk losing some of your Social Security money if a levy is placed upon your bank account(s).

While many disabilities are short-lived, some are not, and still others are difficult to predict. Because of the unpredictable nature of so many disabilities, illnesses and injuries, your best bet is to file a Chapter 7 bankruptcy. This will rid you of the debt that is currently hanging over your head like a dark cloud and will release you from worrying about it. Your ability to focus on healing physically will undoubtedly improve with the weight of your debts lifted.

Your credit rating will take a hit if you decide to file for Chapter 7 bankruptcy in New Jersey. The same is true if you file for Chapter 13 bankruptcy. However, the benefits of wiping out your extensive debts while you’re disabled are much greater than the effects of a lower credit score at this time. Your bankruptcy attorney will be able to help you improve your credit score after your bankruptcy discharge, so that you can get it moving back in the right direction, just as you will be able to improve your mental and physical health without the stress of owing so much money.

Image credit: Alexander Edward

Did I Spend Too Much to File for Bankruptcy?

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Like so many Americans, you’re realizing that you overdid it yet again this Christmas season. “Over-gifting” has become commonplace, and leaves us feeling like we have to outdo ourselves year after year after year. Common lines of thinking include:

“I bought three gifts for each of my nephews but only two for my niece. She needs another gift!”

“Last year, the pile under the tree was so impressive. I want to do that again so my kids aren’t let down.”

If you’ve caved in to the pressure of over-gifting, you’re not alone. Millions of Americans spend more money than they actually have around Christmastime, charging hefty sums to their credit cards. For some, paying off their excessive December expenditures in the new year will be doable.

However, if you were already struggling to make ends meet before this year’s holiday season rolled around, you had an error in judgement if you decided to go ahead and over-gift anyway. The Veitengruber Law mantra for all of our beloved clients is: “Do not spend more money than you have.” Keeping up with the Joneses is so….expensive.

Can I file for bankruptcy? I can’t possibly pay back what I charged to my credit cards this season!

December is often the tipping point for debtors. Once January blows in and those credit card bills materialize, panic emerges. Looking back and forth between your bank account and your credit card bill(s), you realize that you can’t even pay your new monthly minimum payments. THAT is a scary moment, and it is completely understandable that you’re now reaching out for help.

Here’s the deal. Bankruptcy laws have been put into place to prevent debtors from racking up a ton of credit card debt that they actually have no intention of paying. Therefore, if you’ve charged more than $500* on a single credit card within the past 90 days, a bankruptcy judge is going to assume that you’re trying to pull a fast one. Any large sums charged recently (within the 3 months leading up to your filing date) are likely to be considered nondischargeable. That means you can’t wipe them out in bankruptcy, and you will need to pay them back in full.

Even if you never seriously thought about filing for bankruptcy until after you finished your holiday shopping, the bankruptcy court has no way of reading your mind, so they have to make presumptions in order to prevent bankruptcy fraud.

If I charged too much and can’t file for bankruptcy, what can I do?

The best course of action is to wait to file for bankruptcy until the presumption period (ask your attorney how the presumption period applies to your unique case and debt amount)* passes. If you charged an excessively large amount to any one credit card, it’s possible that the credit card company may still object even beyond the presumption period, but the chances are much lower that they will do so.

If you consulted with a bankruptcy attorney prior to your shopping spree, the court will take that as a sign that you intended to file for bankruptcy before you made the charges. Therefore, it’s in your best interest to wait until the presumption period ends to consult with a bankruptcy attorney and attempt to make at least some kind of payment(s) toward the debt. Taking these steps will lower the chances that your credit card debt will be deemed fraudulent and nondischargeable.

Image credit: Alberto Cerriteño

 

$40,000 in Credit Card Debt – What Should I Do?

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Especially around the holidays, coming to terms with the fact that you’re drowning in debt is definitely a humbling moment. The good news is that you have acknowledged that the problem exists and that you need to take steps to get out of debt. Many people who are deep in debt feel that they have “no way out.”

A common phrase heard from severely distressed debtors (owing tens of thousands of dollars or more) is that they cannot afford to hire an attorney. Oftentimes, debtors have ignored creditors for a long time without making any payments on the debt they owe. This, in turn, causes the total debt amount to rise even higher due to interest rates and late charges.

By the time you have reached out for help and have landed on this page, you could very well be swimming in the amount of debt you’ve amassed. Overwhelmed, afraid, embarrassed and helpless, you probably have no idea how to get out of this dire situation.

“I absolutely cannot afford a lawyer.”

This line of thinking is one that we would like to abolish – not because we want more clients, but because we are here to help you. The misinformation that NJ attorneys are simply “too expensive” to even consider is nonsense, and here’s why:

There are New Jersey bankruptcy attorneys who will work with you when it comes to their fees. The most important takeaway is that you will be better off financially in the end if you work with an experienced attorney. Free consultations, payment plans, and other negotiations regarding attorney fees are available, if you look for them.

“Maybe I can take care of this on my own.”

If you are being sued by a creditor for a significant sum of money, the very last thing you ought to be doing is going into court to represent yourself. Pro se defendants are not successful in court, and no judge will show you “mercy” because you didn’t hire an attorney. The truth is: you cannot defend yourself against a mountain of debt that you’ve simply failed to pay. You need a legal strategy to get you out of the mess, or everything you own will have a lien against it, your wages will be garnished, and you will end up with nothing.

Change your line of thinking from “There is no way I can afford an attorney,” to “Can I afford to NOT hire an attorney?”

NJ bankruptcy attorneys who actually want to help you find a way out of your mess DO EXIST. If you’re embarrassed and think we’ve never seen anyone with as much debt as you – think again. We’ve seen it all before! And not only have we seen it, but we’ve fixed it and saved thousands of people from losing everything.

You do have options! No matter how unbelievably bad you think your money problem is, there is always a solution, and you won’t find it without an experienced NJ attorney’s help.

While it’s understandable that you think you can’t afford to hire an attorney, the reality is that you can’t afford NOT to.

Call, write, or read about your options. It may not seem like it now, but there is a way out of even the worst kind of debt.

Image credit: Images of Money

USPS Mail Identity Theft: What You Need to Know

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As our world becomes more and more saturated with technology, it’s now possible to do almost anything online. You can check your bank account balance, transfer money and pay your bills. Heck, you can even run a business online these days.

Even as we move deeper and deeper into the Information Age, there are still a number of people (and companies) who send and receive important information the “old fashioned way” – via the US Postal Service. Most of us still check the mailbox regularly, and it’s fair to say that the majority of Americans receive at least several pieces of “snail mail” every day.

What, then, should you make of your mailbox being empty for several days in a row? While not receiving any mail isn’t really that unusual once in awhile – if the trend continues beyond a single consecutive day, you should look into the reason.

As it turns out, there is a new identity theft scam making its way around the country that combines the use of both technology and old fashioned “snail mail” to take advantage of unsuspecting victims. The first clue that you may have been a victim is simply an empty mailbox.

While you may celebrate when there’s no mail (after all, no mail means no bills, right?) – the real reason may be quite sinister, and one that requires immediate attention. Ignoring your lack of mail may lead to a ruined credit report and a plunging credit score.

Here’s how this particular identity theft scheme works:

  • The identity thief typically applies for a credit card in your name, using your personal information, including your mailing address.
  • The thief then uses the USPS website to place a hold on your mail. The thief pretends to be you, but no authorization is ever required.
  • You stop receiving mail, as your identity thief plans to act as you and retrieve your mail from the post office when the credit card arrives. Again, no identification is required for them to pick up your mail from the USPS.
  • If the thief is successful, they will have a credit card in your name. The mail hold will be removed so that you will begin receiving mail at home again, and (they hope) you will be none the wiser.

This identity theft scheme has been just recently brought to light, and the lack of security surrounding the USPS electronic hold system is being investigated, according to representatives from the postal service.

In this technology-driven world, we all have to prove our identity online multiple times a day – even signing into Twitter can be difficult if you use a different computer or device. Accessing our most valuable personal information, (bank accounts, PayPal accounts and credit card statements) requires that we prove our identity through the use of complex passwords and security questions. Hopefully, the US Postal Service will soon have similar security measures in place in order to prevent just anyone from picking up “their” new credit card, all the while pretending to be you.

Until then, we want you to be aware of this problem so that your identity is not used by someone else. If this has happened to you (or you suspect that it has), acting quickly is of the utmost importance. Report the fraudulent activity, file a police report, and get in touch with a New Jersey credit repair attorney immediately.

Image credit: Matt

You’ve Lost Your Wallet: What to do First

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If you’ve ever lost your wallet or even “just” a credit (or debit) card, you’re undoubtedly familiar with the ice-cold fear that runs through your body when you first realize what has happened. With identity theft and credit card fraud running rampant in society today, there’s no telling what might happen to your personal information, money and credit score when your wallet goes missing.

As soon as you discover that your wallet or purse has been misplaced or stolen, the absolute most important thing that you must do is: ACT QUICKLY. Do everything on the following list, and do it now. Whether you’re at work or up to your ears in finger paint at home with the kids – stop what you’re doing immediately, and:

  • Call your bank:  If you have a debit card (and who doesn’t these days?), the most time-sensitive thing you must do is alert your bank. You have your hard-earned money sitting in your account just waiting to be spent by the person who finds (or has stolen) your wallet. The faster you act, the better the end result will be for you. Most banks won’t hold you responsible for any transactions that occur after you report your debit card as stolen or lost – as long as you make that call right away. If you wait a day or two, you may end up liable for money you didn’t spend. Your debit card will have to be cancelled and you’ll be sent a new one with a new debit number, however it will still be routed to your bank account. The difference will be that the original debit card will no longer work, so no one will be able to use it.
  • Report your credit cards as stolen/lost: It used to be common practice to immediately cancel any and all credit cards that you’ve lost or have had stolen. Now we know that there is a better option – one that won’t wreak havoc on your credit rating. Make phone contact with all of your credit card companies, but instead of cancelling your card(s), explain that your wallet was stolen or lost. Credit card companies are able to freeze any activity on your cards without actually cancelling your accounts, which would send the wrong message to credit reporting agencies and potentially lower your credit score. Request that new cards be sent out to you. They’ll have completely different card numbers, making the original cards unusable, but your account will not be reported as closed or cancelled.
  • Place a fraud alert on your credit report file: Make a call to all three of the major credit reporting agencies – Experian, Equifax, and Trans Union – and let them know that your wallet was stolen or lost. Ask them to place a fraud alert on your personal file. This will cause a chain reaction (a good one) that will prevent anyone other than you from opening a new credit card or taking out a loan using your personal information. This step is especially important if your wallet contained your driver’s license or other personal identification information that may result in identity theft. If your social security card was lost or stolen, you’ll also need to alert the Social Security Administration and begin the process of getting a new card.
  • File a report with your local police: Although this may make you feel like you’re being overly dramatic, reporting a stolen wallet to the police isn’t done so that they can open a case to look for the thief. Naturally, (most) police officers simply don’t have time for that. The purpose of reporting a stolen wallet or credit card to local law enforcement is to create a paper trail of your loss. A police report is a solid piece of evidence you can use regarding any fraudulent charges on your stolen card(s) or identity theft.
  • Learn from your mistakes: Keep your credit cards in a safe place at home and only carry one with you when you need to use it. NEVER keep your social security card in your wallet. In order to avoid your debit card from going missing, always keep it safely inside your wallet in the same place. Tossing it in your purse or keeping it in a pocket is a good way to lose track of it quickly.

 

Image credit: Ryan Loos

Building a Good Credit Rating When You Have No Credit History

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For those people who are dealing with a sub-par or super-low credit score, there is an abundance of good advice available regarding how to improve a poor credit rating. From debt negotiation to loan refinancing, New Jersey credit repair attorneys are able to help their struggling clients watch their scores go up, up, up!

Obviously, on the other end of the spectrum are those people who’ve (almost) always made sound financial decisions, haven’t experienced any major catastrophes, and therefore have great credit scores with glowing credit reports. They obviously don’t need help in this arena.

There’s a much less talked about gray area of the credit spectrum, though, where some young people are finding themselves stuck. These people are generally either in their late teens to early 20s, or they’ve been living at home with their parents and may be approaching their mid-20s or even 30.

What does it mean to have “NO credit history”?

While the terms “bad credit and zero credit history” can often be confused, the two situations are entirely different and it’s important to know your options if you’re in the zero credit history category.

A bad (or low) credit score suggests that you have made some significant missteps in your financial history. This means you may have: had a number of late payments on any of your expenses, racked up too much credit card debt, co-signed a loan that defaulted, defaulted on a loan of your own, recently applied for a number of new loans, closed credit accounts that you don’t use (which lowers your credit utilization ratio), had your home foreclosed, or filed for NJ bankruptcy.

As someone with zero credit history, you’ll face similar problems as those with low credit scores when it comes to getting a loan, credit card, buying a car, purchasing a home, and sometimes even renting an apartment.

Having no credit history, however, is generally much easier to “fix” than having a bad credit history. That’s because you haven’t necessarily made any bad money choices – you just haven’t appeared on the credit system’s radar yet. You don’t have any credit cards, you’ve never applied for a loan or financed a vehicle. When performing a search for your credit history, lenders will simply come back with….nothing. Zero. Zilch.

Does zero credit history mean my score starts at 300?

Just because you have no credit history doesn’t mean you have to start at the bottom of the credit rating scale, which ranges from 300 – 850. Your credit worthiness will be given a score, but not until you have engaged in some activities that can be “rated.”

It can be frustrating when you have no credit history because, although you don’t have a bad credit score, creditors still can’t tell much about your credit worthiness. They don’t know if they can trust you to pay back money or not. Because of this, getting your credit history rolling can be tricky.

Naturally, everyone had to start with no credit history, so building a good credit score from your vantage point is definitely doable. Because lenders will be wary of you at first, you’ll need to start with baby steps.

What kind of credit will I be able to get?

Although you won’t be able to apply for a high limit credit card or a home mortgage right off the bat, there are low-risk ways for you to build a credit history. Start by asking your bank if you can apply for their secured credit card. If you’ve been banking with them for awhile, they’ll be more likely to approve you since they at least know your banking habits. For those who’ve never had a bank account, your first step will be opening a checking account. Do some research first so that you’re sure to open an account with a bank that offers a secured credit card.

It may be possible for you to receive a slightly larger loan, like a used car loan, but you may have to ask a parent or close friend (with good credit) to cosign the loan with you. Most importantly, no matter what your first loan is, you must be sure to make your monthly payments on time. Eventually your responsibility will pay off and your credit score will rise.

At first, your score will not start at the bottom (300) of the scale, nor will it skyrocket to the top (850) simply because you make a few timely payments. However, as soon as you are granted a loan and begin making payments, your credit history will no longer be a giant blank space. Your score is likely to start off somewhere in the middle of the range, and will only continue to rise as you demonstrate credit worthiness.

Snowball vs Avalanche: Digging Your Way out of Debt

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If you’ve landed in a pile of debt that seems virtually impossible to get out from under, you may just need a new approach. Usually, people who have substantial dollar amounts of debt (not including mortgages and car payments) possess multiple credit cards. Realistically, credit card debt is one of the most problematic types of debt for most Americans. On average, Americans who are in debt have at least $15,000 in credit card debt.

“How did this happen? I only charged a few things!”

Let’s face it: this line of thinking is so easy to get into, and it leads down a very troubling path. The reason credit card debt racks up so (seemingly) fast is because charging is thoughtless. We don’t have to think about it – just swipe that card and worry about it later. Additionally, interest adds up much faster than anyone realizes.

Getting real with yourself about just how much credit card debt you owe can be painful. In this case, it’s best to treat it like taking off a bandaid and just do it quickly. Lay out all of your credit card statements in front of you and make a list of each card along with its current balance and interest rate. Tally up the total amount of debt. It’s not going to be fun, but sometimes a reality check is in order when a big change is needed.

Once you have a clear vision of all of your credit card debt, you’ll need to devise a plan for getting rid of it. There are several options that have been shown to work well: the Snowball Method and the Avalanche Method.

Snowball Debt Reduction Method

This type of repayment plan is best for people who have A LOT of different credit cards, store cards and other relatively small debts like doctors’ bills or personal debts to pay each month. It can be very easy to get overwhelmed and confused by the vast number of minimum payments coming in.

To give yourself a confidence boost, you can use the Snowball Method, which involves paying off the smallest debt first in order to eliminate it. You will continue making minimum payments on all other debts while you put more money toward your smallest debt.

After your smallest balance has been wiped out, you can successfully check that off your list of debts you owe! Then move on to the next debt (in order from smallest to largest) and pay them off one at a time until you have paid off all of your creditors.

Avalanche Debt Reduction Method

If you have a substantial amount due on one or more of your credit cards, the Avalanche Method might work best for your debt reduction plan. This plan has debtors tackling their debt in order of interest rate.

Thus, you would still focus on paying off just one debt at a time, while continuing to pay your monthly minimums on all other debts. The difference is that now you will first focus on the card with the highest interest rate. The thinking behind this strategy is that you’ll save more money in the end by eliminating high interest rate balances first.

The Real Truth

Both methods are fine! The most important thing is to do what motivates you to keep going. If the Avalanche Method feels too overwhelming you may end up back where you started really fast.

Choosing a debt reduction plan and sticking with it is what matters. *Special Consideration* – If you are looking at $40,000 in credit card debt and you make $30,000/year – you may need more than just a repayment plan. Filing for bankruptcy can be the best solution in extreme cases like this. If your debt repayment plan has you paying off your debts for more than five years, contact your local bankruptcy attorney to see what your best options are.

 

Image credit: Jon Nicholls