One of the worst aspects of unmanageable credit card debt is the feeling of helplessness. It can seem as if there's no hope of ever getting on top of things, and that can lead to people ducking reality so hard that they end up with their heads in the sand. However, for most, things don't have to be like that, and just facing up to what's happening can improve the mood, and build motivation.
There is a group of people for whom there's little choice but to continue to live with rising debt. They're the ones who -- often through no fault of their own -- find themselves with so little income that they have no choice but to continue to run up credit card balances to feed their families, maintain a roof over their heads and keep the lights on.
Unfortunately, the following six steps won't be of much use to them just yet. However, once their lives are back on track, the steps may be helpful.
1. Face reality
You know it's going to be painful, but you just have to grit your teeth and get on with it. Facing up to your position is an essential first step. It involves:
Adding up the balances on your credit cards and other loans so you know how much you owe. Note the rate you're paying on each card while you're at it.
Listing all your essential monthly spending: rent/mortgage; heat and power; loan payments (including minimum payments on credit cards); commuting costs; home, car, health and other insurance; property taxes; Internet fees; food purchases -- everything that you can't live without.
Calculating the difference between your total income and your total essential outgo. That's your discretionary spending. If your discretionary spending is zero or a minus figure, you should find a qualified and reputable credit counselor.
Getting a handle on how you're currently getting through your cash. It may sound incredibly boring, but try writing down, at least for a month or two, every cent you spend. You might be surprised by how life's little luxuries (eating out, your daily newspaper, those regular trips to the coffee shop and so on) add up.
2. Minimize your spending on luxuries
Resolve not to fritter away the discretionary spending you have on those luxuries, but instead to devote it to paying down debt. Use a credit card calculator to explore how long it will take you to pay down each card, and set optimistic but achievable goals (but first see step 5).
3. Contact your credit card companies
If things have gotten so bad that you can't keep up with minimum monthly payments, you have little choice but to call one or more of your credit card companies. Don't launch into a long sob story, but tell them calmly and clearly that you're temporarily struggling and need them to cut you some slack. Don't expect it to be an easy conversation, but keep your cool and try to convey the fact that you're a responsible person who is determined to pay back what you owe. There's a good chance you can get your minimum payments reduced.
If things aren't that bad, and you can still keep up your minimum payments, call anyway. Don't lie, but don't hint that you're worried about your debt. Simply say that you're looking at other credit card offers but would prefer to stay with your existing issuer if it could shave something off your current credit card rates. Don't expect life-changing miracles, but every little bit helps.
By the way, Fox Business reported that someone was told by a card issuer's call center agent that the Credit CARD Act of 2009 prevented it from reducing credit card rates. That's simply not true. If someone tells you that, ask to speak to a supervisor.
4. Check out balance transfer credit cards
You could consider consolidating your debts in a lower-interest second mortgage or home equity line of credit. However, some credit experts advise against this, because you stand to lose your home if you find yourself unable to keep up the payments.
Instead, check out balance transfer credit cards. These often provide an introductory zero percent rate on the balances you transfer for anything between six and 21 months, which can provide a real breather from the pressure of today's high credit card rates. Two caveats: Expect to see a 3% or 4% balance transfer fee added to your account, and don't bother applying unless your credit score is still good or excellent. A couple of balance transfer credit cards that are worth looking at are Citi Platinum Select MasterCard and Slate from Chase.
5. Prioritize your credit card debt
Not all credit cards are created equal, and you shouldn't treat them as if they were. Keep up minimum payments on all your cards, but pay whatever extra you can afford on the one with the highest rate. Once you've paid that one off, move on to the one with the next-highest rate and so on. As you make progress with this strategy, you'll find that your minimum payments begin to fall and you're paying off bigger and bigger chunks of debt all the time.
One exception to this could arise if you have a very low balance on one or two cards. By all means pay these off first. It may not make great financial sense, but it could boost your morale and motivate you for the bigger balances.
6. Don't swim with the sharks
No, there's no such thing as the Obama Credit Card Debt Relief program. And you need to be extremely cautious about so-called "debt settlement companies." Many of these are out-and-out cons that can actually dramatically increase your debt level. The Federal Trade Commission warns:
"There is no guarantee that debt settlement companies can persuade a credit card company to accept partial payment of a legitimate debt. Even if they can, you must put aside money for your creditors each month. Meanwhile, it may be months -- or even years -- before the debt settlement company negotiates with your credit card company to settle your debts. And if you stop making your payments in the meantime, the credit card company usually adds late fees and interest to the debt each month. That can cause your original debt to double or triple."
There are no reliable shortcuts to eliminating credit card debt. For most, it's a long and grinding slog that's punctuated with occasional feelings of despair and hopelessness. It's important to keep your eye on your goal, and be determined to get through the dark periods. If you do, you stand an excellent chance of finding yourself entirely free of the millstone that's currently around your neck. And when that day comes, you're going to be glad you bit the bullet.
This article was reported by Peter Andrew for IndexCreditCards.com.