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Top Four Techniques to Get Credit Card Debt Under Control

[Jun 8, 2009.]


As economists worry about the potential impact of a stalled economy on Americans’ salaries, average credit card interest rates continue to rise. According to some financial industry analysts, many American households could face a cash crisis if they don’t focus on reducing the amount they pay on interest each month. Personal finance experts from across the country recommend four techniques to eliminate credit card debt.

Control Credit Card Debt with Bucket Budgeting
Although the “envelope budgeting” system has become popular for Americans who want to control their credit card debt, some personal finance advisors recommend taking the approach even further by using “buckets” to represent different kinds of cash flow. A typical bucket budget involves keeping three bank accounts, for short-term, medium-term, and long-term expenses. Weekly expenses, such as groceries and gas, can be paid from a short-term checking account.

Monthly expenses, like credit card bills and mortgage payments, can be drawn from a medium-term checking account. Larger, long-term expenses can be paid from a traditional savings account. Coordinating direct deposits from employers into each “bucket” allows for flexibility among different types of expenses, with far less risk that short term splurges will drain long term savings.

Debt Consolidation Simplifies Monthly Cash Flow
If you have good credit, you can request a personal debt consolidation loan from your bank or from a local finance company. In some cases, you may even be able to convince a customer service agent to consolidate your credit card debt into a single account. Remember to cut up your credit cards once you have merged your debt into a single payment. Many lenders leave consolidated credit lines open, making it tempting for you to ramp up your spending.

Some personal finance advisors warn Americans to avoid securing debt consolidation loans against real estate during a volatile job market. Instead, they recommend focusing on finding unsecured loans from debt consolidation specialists at community banks, credit unions, and other local lenders. Non-profit credit counseling organizations can also help secure small debt consolidation loans, especially for debtors in crisis.

Adjust Your Shopping Habits to Reduce Credit Card Debt
Reducing credit card debt isn’t just about paying down old bills. It’s about not spending more, especially on items you don’t need. Large discount stores like Target and Wal-Mart may make it cheaper and more convenient to buy everyday essentials like groceries and cleaning supplies. However, megastores also tempt you with fashions, electronics, and other splurge-worthy items that can cause your credit card debt to grow. Shopping at smaller general stores, farmers markets, and corner delis might take more time, but will also keep your spending in check.

Leverage Credit Card Debt Payoffs for Better Interest Rates
With so many lenders trying to build their capital reserves, paying off a good portion of a single account may help you negotiate better terms for the rest of your credit card debt. You can pull off your own debt consolidation approach by using savings, a company bonus, or a tax return to prepare a lump sum payment on one of your high-interest credit cards. Contact customer service representatives by phone to learn what kind of deal they may be willing to make in exchange for paying down your account. By trading off a smaller credit line for lower interest, you can stretch a windfall into long term savings.

Making a commitment to reducing your credit card debt requires discipline and sacrifice. It also forces you to evaluate how you spend your time and your money. While it may sound harsh to cut “retail therapy” from your daily life, the long term benefits of building savings can lead to stronger relationships and better health.


About Author:

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.

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