Why should you start managing your credit debt now? If you should ever not pay a credit card balance, that blotch stays on your record and can prevent you from getting a car loan, a mortgage or even a department store credit card. (If you should ever declare bankruptcy, forget it -- it will be on your credit record and affect your credit rating for seven to 10 years.)
Here are some ways to get off the revolving credit merry-go-round:
1. Pay more than the minimum payment each month, if you ever hope to pay off your credit card debt. You must also pay on time or a finance charge will be added onto the total, creating a larger minimum payment for the next month -- and a larger finance charge added to the total again if you don't pay it.
2. Get a system for credit card debt reduction. You need your own deadline each month for paying bills. There are great software programs for keeping track of your financial records (and even writing checks). Quicken, by Intuit, is a popular money-management program. So is Microsoft's Managing Your Money.
3. Negotiate with credit card companies. The amount of credit card debt in this country has made creditors realize that if they don't want people backing down from their obligations completely (in other words, if they want to get any money back), they have to make deals, like these:
Scenario One: You tell the company's collection department that you're having financial difficulties and need to have your interest rate lowered, simple as that. They say, "What can you manage?" You tell them. (I recently got one account to lower my rate to 10 percent and cut off future finance charges.)
Scenario Two: A credit card company has offered to pay off all your old credit card debt at nine percent if you switch. Call your old companies and tell them the deal you've been offered; ask if they can do better, and go with whichever is lowest.
4. If you have a limited budget for debt reduction, write letters to each of your creditors acknowledging the situation, and tell each one when you can begin repayment. They'll appreciate your openness and likely be a lot nicer to you. You'll get yourself some breathing space (something we all need when we're dug in deep), and dealing rather than hiding will help boost your bruised self-esteem.
5. If you have a limited budget for debt repayment, write down what you can pay each creditor each month.
Here's a sample budget:
Say you owe a total of $1,000: $200 to the dentist, $400 to the doctor, and $400 to the accountant who got you out of trouble with the IRS last year. That means 40 percent of your debt is to the doctor, 40 percent is to the accountant, and 20 percent is to the dentist. If you have $50 a month for repaying debt, that means the doctor gets 40 percent of $50, which is $20, as does the accountant. The dentist gets $10, or 20 percent of $50.
A final note on dealing with creditors: Keep your cool. It will make you feel better. And remember, some creditors have been taught to be mean and nasty. Don't be intimidated. You have figured out a plan and are truly attempting to deal with your situation.