How To Eliminate Credit Card Debt

How To Eliminate Credit Card Debt - Introduction

Credit cards are everywhere, usually very easily available and sometimes promising extremely tempting terms. No wonder they have spread like wildfire over the last ten years or so. The fact that they have made borrowing money so very easy is one of the reasons so many people now get into debt beyond what they are able to pay back.

If you are already in serious debt, you really should not be thinking about taking out any more credit cards for spending. Borrowing more money is never the answer to debt problems - it is far more likely to make your situation worse. The best solution is to try to reduce the amount of credit card debt you have by transferring the balance to new cards with lower interest rates.

When you have reduced your interest as far as possible this way, you should cut up and cancel any cards you have for spending, and be sure to never spend on the cards you are using for balance transfers. For full details of dealing with credit card debt this way, see the Credit Card Balance Transfers page.

Credit cards are perfectly good and useful things if you know how to use them to your advantage, but this requires an understanding of the ground rules and then sticking to them rigidly. Fail to stick to the rules and the card companies will take you to the cleaners. Credit Cards can be used to your advantage for free credit, and you can find out more about this on the 0% Interest Credit Cards page.

How To Eliminate Credit Card Debt - How Credit Cards Work

Let's be clear about this - all credit cards exist to make the card companies money. They do this by providing you with this very easy system for spending money, even if you haven't got it, then charging you interest on that money until you pay it back. Unlike a loan, you can avoid paying interest completely if you pay off the balance in full each month.

The card companies depend on you not clearing the balance, so that they can charge you interest on the outstanding amount. You will come across the term APR when you are comparing credit cards. This stands for the Annual Percentage Rate, meaning the amount of interest you will pay on a debt over the course of a full year.

The Consumer Credit Act 1974 requires companies to tell you this so that you can make a reasonable comparison and understand what you will be charged. If some companies quoted the interest rate per month instead of per year, it would be difficult to compare the alternatives, or to fully understand the longer term costs in interest.

In addition to paying interest, you may also be charged various amounts for wicked transgressions such as going over your credit limit or missing a payment date. If you fail to meet payment dates you might also lose any other benefit of that card, such as a special interest rate.

How To Eliminate Credit Card Debt - Minimum Payments

Whatever you spend or transfer to a credit card, there will be a minimum payment to make each month. This is normally a small percentage of the total amount owing, between about 2 and 5 percent. If this is all you pay each month you will take a very long time to pay off your credit card debt. The longer you take to pay off your credit card debt, the more you will pay in interest.

The perfect customer for the card companies is someone who always pays the minimum payment on time, but never any more. That way they have the security of a good payer, who will end up paying them a great deal of interest. You should always aim to clear the balance in full each month, and if you can’t you should have a fixed payment that is as much as you can afford. Never settle for just the minimum payment.

How To Eliminate Credit Card Debt - Credit Cards and Cash Advances

There is a very simple rule about using credit cards to get a cash advance - DON'T.

Most cards will charge you an arm and a leg for this service, and there are often further complications such as none of the cash advance part of your debt being paid off until all your other credit card debt is paid. It is another way of getting more money out of you, and is not something you should use credit cards for.

How To Eliminate Credit Card Debt - Which Credit Card Is Right For You?

There are many different types of credit card and many different types of deals on offer. The situation you are in will dictate which kind of credit card you should go for:

If you already have some credit card debt which you think you can pay off in under a year:

Go to the Credit Card Balance Transfers page.

If you have substantial credit card debt which will take you over a year to pay off:

Your home may be repossessed if you do not keep up repayments on a mortgage, loan or any other debt secured on it. Think carefully before securing other debts against your home.
Repaying debt over a longer period may increase the total amount to be repaid.
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