Managing debt is one of the biggest challenges faced by American consumers today.  We are all being seduced into purchasing more things than we can afford, and our credit card companies are right there waiting to support us.  Credit Card companies obviously make a lot of money off of us; that’s why they are in a multi-billion dollar industry!  How can we out-wit the credit card companies?  It is easier than you think, but you have to have the self-discipline and the motivation.

Debt can be one of the heaviest burdens of our lives.  In fact, the number one reason for divorce in this country is financial trouble.  This is easy to understand as most American citizens try and keep up with the endless cycle of debt we find ourselves in.  It is tremendously stressful.  The answer is simple:  be educated and take control!   It is easy to allow the credit card to solve short term needs, only to develop long term financial problems which are much more damaging in the end.  Once we take control, we empower ourselves to build wealth through smarter decisions.

The truth is: credit card companies really want your business.  The sad part is that most of us don’t really have a clue how the cards we have really work.  Most of us spend the majority of our time and focus on our jobs – if we just spent a fraction of that working on our debt, we can create the most intelligent debt possible.  Unfortunately, those with excellent credit benefit the most.  But with a little hard work, you can reach that point, too.  Take advantage of 0% balance transfer offers when you can.  Some of the offers out there allow for the 0% as long as six to 12 months.  This gives you ample time to concentrate on your debt and pay off your outstanding balance without incurring finance charges.

The essential questions you should be asking in terms of your credit card agreements are 1.) What is the current interest rate?; 2.) How long will that rate last (what is the introductory period)?; and 3.) What is the regular APR after the introductory period is over and how is the interest calculated?

When it comes to managing your debt, there are a few simple steps you can take.  Implementing these simple steps won’t be easy, but it will be well worth your time and focus.  Freedom from debt is one of greatest gifts we can give ourselves.  In order to manage your debt, the first thing you should do is hold off on any additional charges to your cards until you can eliminate your current credit card debt.

First, make a list of all your creditors, including your outstanding balances owed and what interest rate is being charged on each card.  List them by highest to lowest interest rate, and what the balance and minimum payment are for each.  Next, determine how much money you can afford to put toward the payment of your credit cards each month.  Really try and stretch this amount if you can, as it is critical that you pay as much over the minimum payment as you can.  Add $20 to each of the minimum payments, and then total the payments for all cards.  Subtract this amount from the monthly budget allocation you gave yourself to pay off credit card debt.  What ever is left over should be added onto the highest interest rate card until you get that one paid down first.  Once the balance is paid on that card, close the account.  Let’s illustrate what I am talking about:

Let’s assume you have allocated $200 a month to paying down your debt.  Here’s a good way to spread that $200 across these four credit cards:

In this example, you are paying $20 over the minimum for each card, and since you have allocated a $200 monthly budget, you have $30 left over.  You should put that $30 toward the highest interest rate card until it is paid off. So, for credit card #1, instead of paying $45, you pay $75.  You’ll see how quickly you pay this card down and then you can start concentrating on paying off Credit Card #2, until you are finally out of debt.  The above example is just a good benchmark – if you can pay more than $200 a month, or if your debt and minimum payments are higher, you’ll just have to adjust those numbers accordingly.  The whole process may take months, or even years, but once you take control of your debt, you’ll be surprised to find yourself feeling empowered, and eventually this will become a habitual way of dealing with your money.

You may also consider borrowing against your 401(k) or against your home through a home equity loan to pay off your credit card debt.  Consider that the interest you pay on these loans may likely be far less than the interest on your credit cards.  It is also a way to consolidate your debt into one payment – and psychologically you may pay one loan down more quickly than if you have to manage four or five different individual payments.  There is also a tax savings on the interest you pay on a home equity loan (although this is not true if you borrow against your 401(k).

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