Thursday, April 23, 2009

Escaping the Debt Spiral

Credit card debt is the ball and concatenation that impedes many consumers from reaching financial happiness. The biggest problem is that many people who have got got brawny credit card debts have no thought just how much money they’re paying inch interest every calendar month – they’re in a “debt spiral” from which it’s very hard to recover.

Credit card companies charge borrowers rates that far transcend what you get when you put your money. For example, if you have got a nest egg account, you are probably earning less than 3% interest on your money. Unfortunately, if you have got a credit card, you are likely paying 12%, 15%, 21% Oregon more than on the money you’ve borrowed. It’s perfectly legal for creditors to charge those amounts, but it can set you deep in the hole in a hurry.

How about those 0% credit card offers you read about? There are some creditors allowing consumers to do purchases with no interest rates. However, as interest rates have got increased over the past two years, the 0% rate have fallen by the wayside. Most are now limited to the first six calendar months of payments on your outstanding debt (called a balance transfer). At that point, a new rate of 17% Oregon more than boots in. To add abuse to injury, if you are late on payments, you not only lose the 0% rate, but you can be charged 24 or even 29% on your unpaid balance.

All of these patterns – once again, perfectly legal – volition direct you into a debt spiral. The $3,000 you borrowed can soon cost you $10,000 or more than in interest payments over the years. You may be able to do the minimum payment but you are doing little, if anything, to pay off the original $3,000 borrowed. All you are really doing is paying money to cover your interest charges - nil else.

There are ways to lower your rate. First of all, check your credit card statement and see what the interest rate is being charged to your account. If it is much higher than what you used to pay, you may have got had the rate jacked up without your knowledge. See calling your credit card supplier and asking for a lower rate. If they won’t give you a lower rate, see if you can get another card where they offer a fixed, lower rate. They may be offering 1 of those 0% balance transfer rates mentioned earlier. If you prosecute this option, do certain that once you get the new card and your balance have been transferred, advise the old credit card supplier that you are canceling your now paid off of account.

If you cannot get a new card or transfer your money to a lower paying account, you can begin reducing your debt by paying off the biggest amount owed first. For example, if you have got three credit card debts of $1,000, $3,000, and $7,000, do the minimum payments on the last two cards, but do much larger payments on the first card - the 1 with the lowest balance. Once the first card is paid off, then begin making larger payments on the second card until it is paid off. Finally, when the second card is paid off, do large payments against the 3rd card. Providing you don’t go on to add to your credit card balances, you’ll be out of debt sooner than you’d expect.

If some of these options are hard to understand, a trained debt professional person can assist you. The most of import measure is to recognize that you need to take action on reducing some of those outstanding balances. And the sooner you get out of the debt spiral, the sooner you can get edifice wealthiness and a much happier life.

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