Credit Card Debt Management FAQ

Credit Card Debt Management:
Questions and Strategies

Credit card debt management is a critical skill to master. If you can manage or eliminate your credit card debt, you are well on your way to financial freedom.

These questions are some of the most common ones that Dave Briggs, renowned personal finance and financial freedom teacher, receives from the people he helps.

At Financial Freedom Trail, we are committed to helping you with credit card debt elimination. Not only can we help you with credit card debt management, but also money management, and earning more income.

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Here are some of the many questions about credit card debt management and personal finance that Dave Briggs has answered:

Credit Card Debt Management Question #1:

"I have a number of credit cards with high balances and high interest rates. Would it be a good idea to get my debt consolidated into one payment with a lower interest rate?"

Under some conditions, debt consolidation can be helpful, but there is need for great caution.

A couple of very important questions must be asked.

First, �Has the problem which created the debt been solved so that no more debt is being accumulated?�

Secondly, �Is the person with the debt now living on a working budget that has brought the household finances under control?�

If the answer to those questions is �yes,� then debt consolidation can be a helpful tool in reducing the interest rate as the outstanding debt is being paid off.

The greatest danger arises from the fact that if the issues which drove the credit card debt are not solved, new credit card charges are quickly incurred and now both the credit cards and the consolidation loan must be paid off.

The debt consolidation just made the situation worse.

The key continues to be learning to live on a working budget and committing to a debt reduction plan that will permanently reduce outstanding debt.

If you do not currently have a budget or do not feel like your current system is working, we can help you here at Financial Freedom Trail to teach you how to set up and live on a budget.

Credit Card Debt Management Question #2:

"I have tons of credit cards and credit card debt. Is it better to try and pay one card off at a time, or to pay each card a little more then the minimum balance?"

Although this might not sound financially logical, what we have found to be the most successful way to pay off many credit cards is the following approach:

Establish a good working budget that can allow you to avoid new debt.
Build your budget to free up some additional money over and above the minimum payments � for example, an additional $100 per month.
List all your outstanding debts from smallest to largest and the minimum payments for each.
Pay the minimums for all but the smallest and add the extra $100 to the smallest debt until that is paid off.
Apply the total amount you were paying to the debt you just paid off to the next smallest debt until that is paid off.
Keep up the process by moving to the next highest debt until you are debt free.

Even though it seems more logical to pay off the loans with the highest interest rate first, we found the satisfaction and excitement of celebrating victories in paying off debts was a powerful motivator for many people to stick with it and successfully eliminate their debt.

Credit Card Debt Management Question #3:

"I have $13,000 saved in a CD that will be available in June of this year and I have $11,000 debt on my credit card that I just can't seem to ever payoff.

Should I use the money in my CD to pay off my debt? Every month about $120 more is added to my balance due to interest.

I do send them more than the minimum payment but I am overwhelmed.

For the past 2 months I have been on a budget and am not using my credit card for purchases any more."

Good for you that you are now on a budget and have not been using your credit card. Keep up the good work!

As long as you are not draining all of your emergency funds, I like the idea of using your CD to pay off your credit card to avoid the excessive interest.

However, that is only a good idea if you make a commitment not to get back into debt on your credit card in the future.

If you used your CD to pay off the credit card and then go back into credit card debt ... then you would be worse off then you were before!

Credit Card Debt Management Question #4:

"I will be receiving an $8,000 inheritance in June of this year and I have $6,000 of debt on my credit cards that I just can't seem to payoff.

Should I use the money from the inheritance to pay off my debt or just save it? Every month about $95 more is added to my balance due to interest."

As long as you don�t need any of your inheritance for emergency funds, I like the idea of using it to pay off your credit card to avoid the excessive interest.

However, that is only a good idea if you make a commitment not to get back into debt on your credit card in the future.

If you used your inheritance to pay off the credit card and then go right back into credit card debt ... then you would feel as if your inheritance was totally wasted!

Credit Card Debt Management Question #5:
"We have $12,000 on a credit card and we are really trying to pay off our debt.
I suggested transferring the amount onto a new credit card that offers no fees to transfer and then we would pay no finance charge for one year.

That would give us more money to go toward the amount owed. I like the idea but my husband is not so sure. Please let me know your opinion."

It is my experience that credit card companies are always trying to "stick it to people" whenever they can.

They offer these "zero percent interest" cards as a way to entice you to transfer money to their card so that you will buy things and they can charge you high interest after the "free" period is over.

Some people have worked this angle to save a few bucks by paying off the new balance during the zero percent period.

However ... some have gotten really burned!

If you read the fine print, it will tell you that the zero percent rate is in effect only as long as your payment does not arrive in their office any later than the due date each and every month.

If you miss the date with your payment ... even just one day, they will go back to the original date and hit you with all the interest you would have been paying at their "normal" rates.

This can be a huge interest bill which will only make your debt situation worse. Unfortunately, that has happened in far too many cases.

As a result, if there is any risk of a late payment, you are better off calling the credit card company and telling them you want them to lower your interest rate and pay the debt off as quickly as possible.

Credit Card Debt Management Question #6:

"What is so bad about credit cards if they provide a convenient way to cover unexpected expenses when we are short of money? Isn�t that flexibility a good thing?"

It is my observation that not enough people see the underlying danger of credit cards.

Here are some reasons why I believe credit cards can be harmful to your health �

The interest on credit cards can pile up faster than people can afford to pay it back, often creating a hole nearly impossible to dig out of.

Rather than finding a solution to income shortfalls by adjusting down the lifestyle immediately � credit cards are frequently used to avoid working on a solution until it is too late.

We hope that you have found these credit card debt management questions and answers helpful.

Please keep checking back with us at Financial Freedom Trail as we are rapidly adding new content. Not only for credit card debt management, but for many related topics designed to help you achieve financial freedom.

To learn more about credit card debt management and how to eliminate debt, please click here.

Two of the ways people unknowingly get into trouble with their credit cards is from the credit card whirlpool and the debt trap.

Credit Card Debt Management: Questions and Strategies

Credit Card Debt Management:
Questions and Strategies