Managing Credit Debt

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Guide to Reduce Credit Card Debt
Guide to Reduce Personal Loan Debt
Guide to Reduce Student Loan Debt
Guide to Payoff Your Mortgage Fast

Managing Your Debt
Managing Credit Card Use
Managing and Planning a Budget

Checking - Protecting Your Credit
Debt Consolidation Worksheet
Debt-to-Income Ratio Calculation

Lowering Your Bills Guide
About Your Credit Report
Building, Maintaining Your Credit
Increasing Your Income

Request Debt Relief Services

Debt Management Notes

note: what your credit report
is showing related to your debts

note: using your home equity
to consolidate your debts

note: budgeting software to paydown
debts and your mortgage

join this credit and debt
management forum

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Managing Credit Card Use

Summary
Managing and Reducing Credit Card Debt: credit cards are the easiest way to get into debt — take the steps necessary to keep credit card use under control and your credit rating strong
info below	Program A: Maximize Credit Benefits designed for credit card holders who pay their credit cards in full each month — use this program to maximize your credit card benefits
info below	Program B: Manage Debt designed for credit card holders who find it difficult to control debt by excessive credit card use — review steps to reduce debt and control spending
	Need a New Card? — view what's available in rebate credit cards and pre-paid cards for budget, student and debt control

Guide	Lower Your Bills: review our companion site on lowering your housing, transportation, food and other monthly bills.
Guide	Budget Management: build a monthly spending plan with financial goals for home buying, college savings, vacation and retirement.

Managing and Reducing Credit Card Debt

How you manage your credit cards is a key measurement that credit reporting agencies use when quantifying the credit rating of an applicant.

Card holders who pay their card balances on time, at the required amount, will receive a favorable credit rating that translates into lower interest rates on mortgages and consumer loans.

Card holders who are late in paying their credit cards payments, often not paying the required amount as due, will receive a less-than-favorable credit rating that translates into rejected applications or higher interest rates for mortgages and consumer loans.

We have two credit card management programs for review:
1. Program A: for card holders who control their credit card use and payoff credit card balances in full each month.
2. Program B: for card holders who carry credit card debt and pay only the minimum balance each month.

Program A:
Maximizing Your Credit Card Benefits

These steps are for card holders who have the discipline to control credit card purchases.

Your objective under this program is to build a usage pattern that strengthens your credit rating and builds credit card benefits.

Step 1:
First, you will treat your credit card like cash, deducting from your money account the purchases you make with your card.

You can either deduct the amount by making an entry in your checking register, or using your Personal Financial Management Software (PFM) such as Quicken® or MS Money®

Basic rules for this card management program:
— keep good accounting
— record every transaction
— deduct money from your account for each credit card purchase
Step 2:
Pay the entire balance each month. Never carry a credit card balance. The money to pay the credit card balance should be available from your money savings under Step 1.
Step 3:
Limit your credit cards to 2-3 cards maximum. Select your cards with the following features:
- no annual fee
- 25-day grace period
- rebate incentive or other incentive program
- VISA, MasterCard

single-cycle billing

view our credit card index for sample programs

Step 4:
Note that on average, credit card users spend about 10-12% more on items than buyers who pay with cash. That is why you should establish a monthly budget to curb your spending:
see managing a budget

Use your credit card for all budgeted essentials such as groceries, utilities, rent, etc.

Get rewarded for your use: download on rebate card benefits page
Step 5:
Understand the benefits.

— strengthen your credit by paying large balances each month
— gain 25-days use of your money that can be earning interest
— earn rebate benefits such as airline miles, auto points, etc.
Step 6:
Make a quarterly assessment.

If you find yourself spending beyond your budget (based on the ease of credit card use), you may need to switch to Debit cards or cash to curb your spending.

Program B:
Managing Credit Card Debt

These steps are for card holders who lack discipline to control credit card use and who have incurred credit card debt.

Step 1:
Use the worksheet at right to list your current credit card debt balances. and interest rate APR.
Step 2:
Hit "Calculate" to total your total credit card debt and the monthly interest rate charges.

Note the fees that you pay each month just having this debt. The goal is to rid yourself of this obligation.
Step 3:
You have three options to reduce your debt:

Option 1:
pay off the debt over time with extra savings

Option 2:
consolidate your debt under a repayment plan using another credit card or consolidation loan: see debt consolidation plans

Option 3:
seek credit counseling services: click here for debt relief services

Credit / Retail Cards

Credit Card 1
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Credit Card 2
$ %

Credit Card 3
$ %

Credit Card 4
$ %

Credit Card 5
$ %

Credit Card 6
$ %

Credit Card 7
$ %

Credit Card 8
$ %

Credit Card 9
$ %

Your total outstanding credit card debt $:

Your current monthly interest rate charge $:

Step 4:
Select two cards from your list. Select the card that offers the best benefits:

no annual fee
25-day grace period
low interest
VISA, MasterCard
single-cycle billing

If none of your current credit cards fit these benefits, find a credit card that does:

view our credit card index

Step 5:
Take a pair of scissors and cut all of your cards in half (except for the two cards you selected). Store the pieces in a jar as a reminder of your credit management program. Tuck the two remaining cards away for emergency use only.
Step 6:
Enroll into a pre-paid credit card program. Pre-paid cards work exactly like credit cards but function as a cash card. You load to the card the amount you need and use the card like a regular credit card to make purchases, arrange reservations, etc.

The advantage of pre-paid's is that you limit "instant gratification" since the amount you spend is set by the amount you budget and load to the card.

View how pre-paid cards can be used to control debt
Step 7:
Establish a family budget. Part of your budget will include a debt repayment plan.

See personal budgeting
Step 8:
You will now use your pre-paid card for your everyday expenses. If you don't have enough cash loaded to the card, adjust your monthly budget accordingly.
Step 9:
As you payoff each credit card balance, call the creditor and request that they close your account (you may need to mail your card back).

Note: it is important that you close your account to remove the credit card from your credit report.

Throw away any new credit card offers that come in the mail. Hang up on telesales representatives hawking credit cards programs. Refuse to enter into any financing agreement with a furniture or home improvement retailer.
Step 10:
After about 12-18 months using PRE-PAID CREDIT ONLY, you can now jump to Program A above for maximizing your credit card benefits.

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