If you are like any other red-blooded American living in the current time of today, you probably are carrying a balance on one or a few different credit cards. This revolving debt is going to cost you plenty of money in interest rates, so the big credit card companies are in no rush to have you pay everything back, if at all. This is what they want you to do: pay the minimum balance, preferably not on time, so they can then slap on late fees (they are not small) and finance charges. You'll be amazed how much only $1000 in debt can turn into several...and it can feel like you'll never get out of an ever-deepening hole.
"But wait! If you call 555-Credit-Help-4-YOU, You'll be debt-free!" Yeah. Wouldn't it be nice. Plenty of these comercials are floating around, but please, please, please look carefully at them. A lot of these so-called 'debt helplines' are really just bankruptcy in disguise (). Bankruptcy is nothing to make light of, and it can take years to repair your credit report (grown-up report card, essentially). This is a simple but effective jewel of a plan that I use myself.
Step 1: Take all your credit cards and their most recent statements and sit down at a nice, cleared off table. You'll want the room to shuffle the paper around. Have a pen and a pad of paper so you can make lists. Then take a deep breath. You can do this.
Step 2: Look at each card's APR (Annual Percentage Rate). This is the most important number, regardless of however much you owe. This number determines how much more money you're going to be dishing out to the credit card companies. The bigger the APR, the more money you owe in the long run.
Step 3: List each card in descending order of highest APR to lowest. This is going to tell you which card you'll be focusing all your 'de-debt-ifying' power on first. Again: Don't look at how much of a balance each card carries; if you owe $2000 on a card with 11.999%, but $3546 on another with 8.998%, pay off the $2000 first. It is less money out of pocket in the big picture.
Step 4: One of my favorite books on this subject, Gener@tion Debt by Carmen Wong Ulrich , says the next thing to do is call the credit card companies and ask them to lower the APR. Most companies will do it, because they don't want to lose your business. The worst they can say is 'no'. If that is the case, find out what the balance transfer fee is, if there is one. You can always transfer a portion of a balance to a card with a lower APR in order to have less interest accrued. (Personally, I'm too shy to call a random company, but I am working on mustering up my nerve. Wish me luck!)
Step 5: Start with a fresh sheet of paper and re-order the cards in the list with their new APR's. Look at the top one: this card should have the highest APR. Circle it and post it on the fridge. Now work out a budget of your monthly expenses. Write down how much you make in a month, then take out utilities, car payments, insurance, and guesstimated groceries. The number you have left is your 'de-debt-ifying' money. Take out the minimum payment for every card EXCEPT the top one with the highest APR. That card with the most APR is where the bulk of your extra money is going to go. The more you can sock towards the debt sooner, the better off you'll be and the less interest will accumulate.
Step 6: Be patient and stick with it. You'll be amazed at how the numbers you owe go down and how gratifying it is, too. Now that the first card is paid off, put a big red slash through it on your list and either put it away or cut it up; whichever you need to do so you won't be tempted to use it unless it is a dire emergency. (New leather high heel boots or a new sound system for a car do not count as emergencies. Unfortunately.) Don't give up the good habit just yet, either. Now that one card is paid off, you can take all the money that would have gone to that card to the next one on your list! Add that to the minimum payment you were already paying to the second card (now the first on your list), and you're that much closer to getting rid of that debt.
Congratulations! You're on your way to being debt free! And you didn't have to pay anybody but the credit card companies! This plan is not instantaneous (these things never are), but with patience, perseverance, and discipline you can eliminate your debt. After the first credit card dragon is slain, the process will go faster. It takes the longest to get over that first hill, but once you're there...enjoy the view and the satisfaction of knowing that you can now call yourself a Debt-Buster. Give yourself a well deserved treat. Just don't charge it on a credit card.
(highly) Recommended Reading: User Friendly and extremely informative. It is easy to read and understand; the author is excellent in giving resources and explaining terms.
Must-do List for Debt Management. Government PDF file on how to find a credit councelling firm and what questions to ask. Good for people who are seriously mired in debt but aren't at the point of declaring bankruptcy.
I think it's more of a 'long term get rich quick' scheme, but I do like the chapter on 'Bad Debt: Debt Management'.