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How the Debt Laden Consumer Can Reach Zero Balance

After deciding to confront your debt and vanquish it to life’s rear view mirror, your first step should be evaluating your spending habits. After all, spending beyond one’s means of payment is the basic cause of debt. Often, however, it is difficult for most of us to find substantial money saving lifestyle cuts because we tend to believe that most things in our lives are essential. Still, believe it or not, it is possible to make do without things like elaborate cable and cell phone packages. Therefore, if you have debt you must approach your lifestyle with a critical eye, and trim the fat so that all is left are the bare essentials—food, shelter and health insurance. Doing so will be aggravating, but it will also help rescue you from debt.

This is not the sole method of debt reduction, however. Another excellent approach is to pay down your debt strategically. Most credit card debt represents a combination of balances held on various cards, each with a different interest rate. In order to systematically lower the cost of your debt you must refrain from paying the same amount of money to each card per month. Instead, pay only the minimum amount required to the card(s) with the lowest APR(s) and the rest of your monthly credit card payment allocation to the card with the highest interest rate. Once this card is paid off, apply this technique to the remaining card(s) before using this allocation for car loan or mortgage payments.

When addressing your debt, it is also important to understand that credit card companies regard payments below the minimum amount required and no payment at all without much distinction. Payment amounts less than the minimum initiate or worsen credit card delinquency in exactly the same manner as lack of payment, and therefore should not be made. If you do not have enough money to meet the minimum payment, refrain from paying anything until you do.

However, if you are delinquent, remember that there is a big difference between the required minimum and the total amount due. The minimum payment is the amount required to avoid slipping further into delinquency. The total amount due is what you must pay in order to become current on your payments, which is the sum of the minimum payments that you have missed plus the upcoming minimum payment.

If your debt worsens and the aforementioned options prove unsuccessful, you should call your lender and try to negotiate for a lower debt total, decreased interest rates or a payment plan that involves a lower monthly minimum.

You must approach these negotiations with knowledge and tact, however. Call your issuer knowing how much you can afford in terms of both lump sum and per month payments. Explain your situation calmly and politely and do not exceed your means with the terms of any agreement because breaking restructured terms will likely trigger expensive penalties.

If, however, your negotiation efforts fail and your debt continues to worsen, it might be worth paying a professional for either debt settlement or debt management services. Debt settlement is when your issuer is concerned by the fact that you are severely delinquent and agrees to lower your debt in return for you paying off the decreased sum with a single payment. Debt management involves developing a payment plan that often includes lowered interest rates and decreased monthly payments in exchange of closing all your credit cards. While these methods require an outlay of money, they might be worth the extra cost because of the experience and relationships that these organizations bring to the table.

However, do not pay any company promising debt relief before it actually provides you with tangible results. Recent Federal Trade Commission (FTC) regulations preclude debt relief telemarketers from charging for services not yet rendered, but there are many unscrupulous companies in this category and caution must be exercised nonetheless.

If these options are either inapplicable or unsuccessful, you might want to consult a bankruptcy attorney. Bankruptcy should be a last resort, however, because it significantly damages one’s credit for a period of 7-10 years.

This article is written by Odysseas Papadimitriou, CEO, an online marketplace for credit card offers and gift card exchange.


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