Help, I can’t get out of credit card debt!

I was recently asked a question about credit card debt that I think many people can resonate with, so I decided to post my response. The question was, “I have about $8,000 in credit card debt and I’m making payments, but it seems I’m not making any progress. Should I just declare bankruptcy?”

Here is my response:

Your question is a common one, especially in these challenging economic times. People are using credit cards to buy groceries, gas and other necessities. I’m happy to hear that you are making payments and taking a proactive approach.

You aren’t seeing much of a dent because most of your monthly payments are going towards interest, not the principal. Take a look at what interest rate you are paying and try to get that down. Contact your credit card company and speak to a supervisor. Tell them you are doing everything you can to make these payments, but you are having a tough time. Ask them if they can reduce your interest rate or have any type of special programs for people in your situation. Bottom line, it’s in their best interest to work with you, because if you decide to declare bankruptcy, they may never get a dime. (By the way, bankruptcy should be avoided at all cost, as it creates havoc to your credit score for years).

Fortunately, there is a lot of help for consumers who are overwhelmed with their debt. Some of the ‘debt help’ or ‘debt consolidation’ businesses aren’t exactly legitimate. They will typically ask for a nice chunk of money up front and oftentimes, can create more of a mess than what you started off with. Only work with debt counselors that are recommended by the National Foundation for Credit Counseling (www.nfcc.org- 800-388-2227).

These counselors will sit down with you and work out a repayment plan. Typically, they will gather all your debts and you will make one single payment to the counseling agency. Oftentimes, the counselors will negotiate deals where some of your credit is forgiven or they can get your interest rate reduced. This service isn’t free though, so be sure to ask what their fee is.

Again, much of this can be done on your own. Don’t be afraid to contact your credit card companies and push a bit. If they say no, call them back in one month. Always speak to a supervisor or manager.

On the other side of the coin, let’s talk about ways you can make larger payments every month. Take a hard look at your spending habits and find items you can cut out of your monthly expenses. This part of the equation is always challenging, as we have certain habits that can be tough to break. Here’s a few simple ways to cut back:

• If you eat lunch out at work, consider taking a sack lunch
• Make coffee at home in the morning rather than hitting the coffee shop
• Check your cable TV and cell phone plans and see if you can cut back on services
• Watch the ‘emotional spending’ going on (buying something to feel better)
• When purchasing something, ask yourself “do I need this or want this”. If you answered ‘want’, put it back.

I realize this can feel like sacrificing quite a bit, but consider how great you will feel when your credit cards are paid off. Plus, the interest that you will be saving over time can be applied towards building your financial freedom account! I know you can do it!!