Credit Card Debt - how to get out of it

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The sad irony of getting caught up in credit card debt is that the fees and charges the credit card issuers slap onto your account normally makes it ever more difficult to claw your way back to financial freedom. It’s often the case that the addition of these charges actually creates a condition called ‘negative amortisation’ – a situation when despite payments being made to the account, the fees and charges added to the balance actually cause the balance outstanding to grow. For many people caught in such a trap it is unfortunately a one-way ticket to bankruptcy and the really sad aspect to all of this is that it doesn’t take much to get into such a position – just spending a little more than you can repay, over a lengthy period of time, is enough to send most people headlong into a mountain of debt.

If you do find yourself in a situation where you can’t keep up with your credit card obligations and fall into debt, there are some steps you can take to tackle the problem head on. On paper these steps sound simple and easy to implement, but the reality is that it is going to take a lot of hard work, commitment, and a change in the way you treat your finances in order to claw your way back from credit card debt. Tackling this problem will be mostly about attitude and commitment.

Firstly, and most importantly, you need to stop using your credit cards. Now. Cut them up if necessary, and don’t be tempted to use them again until your debt is paid off (if ever again). If your situation is quite severe then you should have no compunctions in cutting up all of your credit cards. If you can’t quite bring yourself to do that then at the very least give them to a trusted family member who can keep them away from you.

Secondly you need to take stock of precisely how much you owe, to whom, and at what level of interest and penalty fees are you being charged. If you owe money on more than one credit card you need to list all of the amounts, the interest rates, due dates etc, so that you can see at a glance which card is haemorrhaging money the fastest. Once you have identified where the money needs to be paid, and when, your focus should be on the credit card that charges the highest interest rate. Remember to make sure you make payments on all your credit cards each month to avoid late payment fees and other charges, but put all of your spare cash onto the credit card with the highest interest rate. If you have debts on more than one credit card, remember that the hardest credit card to pay off is the first one. Once that one is out of the way, then you have more disposable cash to tackle the next credit card and so on. Tough out the first one, and the going gets easier.

If you have any credit left on any of your credit cards you can look at consolidating some of the balances onto one credit card providing you are moving a balance from a credit card with a higher interest rate to a credit card with a lower one (but always make sure you do the math first, and take into account any annual fees, admin charges etc. that might cancel out the benefits of a lower interest rate).

The next step is to talk to your credit card issuers. Explain your predicament to them and see if there is anything they can do to help. Make sure that you talk to a middle or senior manager, not a desk clerk, and make sure that you have all your facts and figures to hand and that you have a reasonable plan of attack formulated for paying off the amount. Banks are there to make money, so they can generally be quite accommodating if you approach them in the right manner. By talking to them you can aim for a freeze on interest charges, late charges and the like. You may not get them to agree to everything, but if you approach it in the right manner it certainly is worth asking. Keep in mind to take notes of every conversation that you have with your lenders. Ask for names, record times and dates and key points about the conversation. Where appropriate, ask if you can have something in writing to back up any important decisions or agreements, and always, always be courteous and polite – even if you think it was their outrageous fees and charges that got you into the predicament you’re facing. It will never be any benefit to you if you alienate your lender against you, no matter how justified you think your claims are.

The last step is probably the hardest: spending less than you earn. There is only one sure fire way that you’ll ever be able to pay off your debt, be it a credit card debt or any other, and that is to spend less than you earn. The less you spend, the more you’ll have available to pay off your debt, the faster you’ll be free. This doesn’t mean living like a hermit and living on bread and water. It just means you’ll have to think twice about where you spend your money, and look out for ways to save where you can. It’s a good idea to reward yourself from time to time when you achieve headway into your debts. For example, if you have more than one credit card to pay off, reward yourself with something special when each of the credit cards is paid off. You’ll feel better about tackling the next one if you do.

Remember, it probably took a long while to get yourself into this level of debt in the first place, and it’s going to take a long while to get yourself out of it as well. Stay focused in the head and you’ve almost won the battle, and don’t be afraid to talk to your credit card issuer if you feel you’re slipping behind again – it’s in their interest to help you.