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 Based on the information we shared in our last article on Credit Card Debt Statistics, it is obvious that a lot of people are looking for help reducing their credit card debt. With over $2.4 trillion in consumer debt and the average household carrying nearly $8,000 in credit card debt, something has to give.
Impact of Credit Card Debt
The impact of all this credit card debt on consumers is widespread. Nearly 2.5 million Americans will seek the help of credit counselors to avoid filing for bankruptcy. And over 500 thousand families filed for bankruptcy protection in 2006.
Our advice for those looking at credit card debt reduction alternatives follows the same process we have described in similar articles. This is a stepwise process that you can go through, with each subsequent option, or step, to help reduce your debt being more aggressive than the previous.
Budgets Help Lower Debt
The first thing you need to understand is the flow of money into and out of your household. If your credit card debt is growing and your bank accounts are shrinking, then it is obvious that this pattern cannot go on indefinitely.
If you are one of those persons that make a living wage, but cannot figure out where all the money goes each month, then you need to develop a budget. Simply going through the budgeting process will help you to better understand how to reduce your credit card debt.
We've put together a two part series that covers all of the basics of developing a budget - Budget Worksheet. This series even includes a budget spreadsheet that you download and use to keep track of your household income and expenses. If you are a heavy credit card user, then much of data you need to complete the budget is probably already on your credit card statement. The single most important thing to do when you go through this exercise is to identify the essential expenses and the discretionary ones.
Credit Counseling
With the growing problem of consumer credit, there has been a steady increase in companies providing credit / debt counseling services. Credit counselors will help you develop a household budget and educate you on the basics of home finance. If you are going to work with a counselor to reduce your credit card debt, then our advice is to work with a reputable nonprofit credit counselor. We've written an article on Christian Debt Consolidation that provides useful information on how to identify a reputable credit counselor.
If your problem with credit card debt stems from a social situation that may be affecting the income earners in your household, then credit counselors should be able to help here too by getting you in touch with a social worker. Many times, changes to family structure or illnesses are at the heart of runaway credit card problems.
Credit Card Debt Negotiation
The rules for credit card debt negotiation are pretty simple. You need to be upfront with your credit card company or any other creditor about your ability to pay down your outstanding balance. They have to understand that the alternative to reducing what you owe them may be declaring bankruptcy. If they think they will eventually get paid, then they have no incentive to forgive any portion of your debt.
Sometimes credit card debt negotiation is a service offered by credit counselors. Keep in mind that this is a pretty serious step you are taking with your credit card company. They are trained in negotiating with people in your situation. If you're not good at negotiating, don't even bother trying. If you think you are a smooth talker, just be warned that these are professionals and they've heard all the excuses many times before. You best bet is to try for a deferred payment arrangement that you can actually meet.
Credit Cards and Debt Consolidation
Consolidating your credit card debt into one big loan is something that works out well for a lot of people. Especially if they've gone through the budgeting process and now understand how to stay out of debt in the long term.
Debt consolidation is the process of taking certain kinds of debt such as credit card balances and turning them into a long term loan. Please be aware that with debt consolidation you are turning a credit card balance, which is an unsecured loan, into a secured loan. That means that debt consolidation involves using an asset such as you home as collateral on the loan. If you stop paying your debt consolidation loan, you could lose your home.
Debt Consolidation Calculators
If you'd like to run through some scenarios to see how a debt consolidation loan might be able to help, take a look at our online calculators. Here you'll find a wide range of planning tools that can help you evaluate a consolidation loan or figure out what it takes to pay off your credit card debt.
Credit Cards and Bankruptcy
Don't let anyone talk you into declaring personal bankruptcy because they claim it is the easy way out of credit card debt. If you are looking for debt reduction options, bankruptcy is certainly an option that is available to you. But we started this article by saying that each of these options was more aggressive than the previous one.
Bankruptcy is the end of the line; that's why it is the last option we are listing. If it was easy, then it would have been listed first. You can still lose you home through foreclosure and you may even still have to pay down some of your credit card debt. Your credit report will be impacted and that makes getting credit in the future much more difficult.
If you're not sure what bankruptcy is all about, check out our article on Bankruptcy. That particular article should give you enough information to help you figure out if you want to head in that direction. Finally, bankruptcy is a legal matter and consulting an attorney is highly recommended for any and all matters involving the law.
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