I discovered treasure in the doctor’s office! As I was pawing through stacks of magazines to pass the time, I stumbled upon a vintage 1992 magazine. How fun! I had a grand time devouring the way-cool fashions (fussy), the amazing hairstyles (big), and the over-the-top recipes (high fructose). Then I came across an article about credit card debt reduction. Were we really concerned back then about reducing our credit card debt? Compared to today, it all seemed so, well, loose.
In truth, 1992 may not seem particularly “vintage” with respect to clothing and hairstyles, but certainly in the credit market, 1992 feels like a century ago. I wondered how the 1992 world of debt relief differed from the 2008 version, what with the collapse in the credit industry. Certainly, the “tight credit” economy today is a much more complicated arena than the “loose credit” economy of 1992. Therefore, credit card debt relief circa 2008 has to have different strategies than credit card debt relief circa 1992. Yes? No.
Surprisingly, the process of getting and keeping your credit card debt in control hasn’t changed significantly in the past 16 years. We lived in a vastly different economic climate in the 90’s than we do today. Credit was King. So then, why hasn’t getting out of debt changed to reflect the credit market conditions of today?
The tenets of credit card debt relief remain the same for all these years because basic financial strategies never change. Spend less than you earn and save the rest. When credit cards became the norm for everyday spending, we entered a new “credit poor” world. And, after some years, we are all suffering. I suspect that in 1992 an article about debt relief didn’t get as much readership as, perhaps, the clothing and hairstyle articles. Today is a very different story. Today when people thumb their way through a magazine, they are looking for some help designing their future financial stability, and not their clothes.
Then what are the basic strategies for a family like yours to get rid of their credit card debt for once and for all? Briefly outlined, here they are, just like they were 16 years ago:
1) Cut-Up, Burn-Up, Shred-Up, or Blow-Up Those Credit Cards.
Painful as this is, Get Rid Of Those Credit Cards! I don’t know how many people try to pay off their credit card debt while clinging to their credit cards! Why don’t you try to lose weight while clinging to that donut. It makes as much sense. If it wasn’t a crucial step, it wouldn’t be The Number One Step, now would it. Begin with those ridiculously high-interest department store credit cards, and destroy them all. Yes, all of them. They’ve offered you 10% off your next purchase; figure out what the interest on that so-called “savings” is going to cost you. Not very pretty, is it.
Now lay out your major credit cards, then stop. You’ll need to keep just one major credit card, meaning a Visa, Master Card, American Express, and the like, for the purpose of booking flights, hotel rooms, and any emergencies. Of those major credit cards, which has the lowest interest rate, no annual fee, sky-miles, and other special incentives? Keep that ONE card and destroy the others. If you can’t trust yourself with one major credit card, do what the financial experts do: put it on ice. Literally, put it in water and freeze it. If you need to book a flight or have emergency maintenance done on your car, thaw it out and you’re set. Sort of eliminates impulse buying, doesn’t it.
2) Do the Household Money Math.
Take a good, long, honest look at your income. How much money do you bring into your house each month, after taxes of course. Now, map out your monthly household expenses that keep your family sheltered, clothed, schooled, and fed. Don’t forget gas for the car, insurance, medical needs, and anything you need to live. Be sure to include every expense so you don’t find yourself dipping into your “debt reduction fund” later for incidentals that you should have planned for. It’s better to plan a bit heavy on the expenses column because you’d rather have a few extra dollars to pay on your credit card debt than come up short.
Now you have your so-called “disposable income” which is what you need to know before you take your next step. This is the actual money you have each month to apply to your credit card debt. Take out your last month’s credit card statements and review the total on each credit card statement. Decide if there are any “local” store credit cards in which you would like to maintain good customer standing. Prioritize your credit cards and divide up your disposable income between them. That is the amount you are able to pay each month on each credit card. Write that figure down and make thorough notes on each statement about what you can pay and cannot pay, such as the late fees or over-charges, or 18% interest. Now, you are ready for the next step. Take a deep breath.
3) It’s Time to Call Your Creditors.
This is probably the most unnerving step for most people. However, you cannot avoid this unpleasant step because it is necessary if you want to achieve your goal of credit card freedom. It’s unrealistic to think that you can just make monthly payments on a credit card with high interest rates and gain any ground toward paying it off. If you have already tried this you know what happens. The interest escalates and your little payment gets swallowed right up, not even making a dent in the principle. It’s discouraging to say the least, and impossible.
You’ve already gone through the last month’s statements from all your credit cards when you divided up your disposable income. Review your initial notes and make any adjustments you think you may need on each of last month’s credit card statements. You want a good solid dollar amount that you can pay each month figured out on each credit card statement before you make your calls. Remember, you will also be asking for a lower interest rate and a reversal of any late fees or over-charge fees that you may have incurred as this is the only way you will be able to send that amount each month.
Calling the credit card company’s customer service number is a heart-pounding experience for most people. As a former customer service employee, let me tell you that the person you are talking to is nothing more, and nothing less, than an employee. He or she is paid to do a job for a company. Now, go ahead and call the first credit card customer service number. When you get a real person, tell them that you want to pay off your credit card, but cannot afford to make the monthly payments as they are currently set. You may want to practice this line several times; even writing it down: “I want to pay off my credit card, but I can’t afford to make the monthly payments as they are right now.” Then you will tell them how much you can afford to send them each month, but you’ll need late fees and over-charges reversed. Then ask for a reduced interest rate, and let them know that this is the only way you will be able to send them money each and every month until it’s paid off. You may not get everything you wish on the first call. They may reverse the late fees, but not the over-charges. They may not come down as far as you want them to on the interest. Do what you can. The most important thing here is for you to do your homework first. Know what you can pay each month, and negotiate the rest. Keep in mind that you can call them again as your situation changes and you want to renegotiate.
If you have received letters offering you a one time payoff for a particular credit card, ask the credit card company customer service employee if it is a legitimate offer. If it is legitimate and if you have the money, you may want to consider that as an option. One note though, the difference between the debt you owe and your actual one-time payoff to satisfy the debt may be subject to income tax. Check your state and federal guidelines before you decide. It may still be a viable option, but you want to be prepared at tax time.
Back in 1992 when credit was easy, you may not have gotten very far in negotiating with the credit card companies. In 2008 we have a whole new economic scene out there. These credit card companies are living and dying by whether or not they can get YOUR payment each and every month. They WILL negotiate, but you need to be firm and do your homework.
4) Sacrifice, Sacrifice, Sacrifice.
Don’t you just love it when you get your income tax refund or a bonus at work? It’s so fun having some “found money” to spend any way you please, isn’t it? Not anymore. I hate to be a Scrooge here, but somebody has to watch out for your frivolous ways. That’s how you got here in the first place. Now that you have a plan, every extra penny you have MUST be used to pay down your debt if you expect your plan to work. Any time you spend that extra money that fell into your lap on something other than paying off your debt, you have just also tacked interest on it. Think about it. If it doesn’t go to paying down your debt, the principle you owe on your credit cards didn’t get any smaller, so you are paying interest on that money. How many times is that same money going be spent when you pay interest to a credit card company because you still have a balance with them? Ouch! You’ll get a faster return on that found money when you use it to pay down your credit card debt.
5) Stick With Your Plan.
This may very likely be your financial plan for a long, long time, depending on the amount of credit card debt you have. We’ve all seen the commercials; “How I Got Out Of Debt In Six Months”, and we know that is simply not true. It took you some time to get in this mess, perhaps years, and it will take you some time to get out. After about the six month mark, you may feel a little restless and want to spend a bit of your hard earned cash. You may even see your credit card balances drop within a sort of “comfort level” for you after awhile. Before you decide to splurge, take a look back in time, browse through your credit card statements, and tell me what incredibly important item you see on any statement. Now, add up the interest you’re paying every month and tell me again if any of those items you purchased were so valuable that you were, and are, willing to pay two, three, or four times their value. Well, that’s what just one little indiscriminate spending spree will cost you in the end. The trick is, if you get comfortable with your money, pay even more down on your debt. Your freedom will come that much quicker. Be smart and stick to your guns.
6) Give Your Income a Boost.
This is an area of debt relief that is seldom approached. Partly because not everyone is able to easily supplement their income with another job. That’s understood. But, just raising the issue of more income is a reasonable step. There are many variables to increasing your income. If you feel worked-to-the-bone every day, it’s hard to imagine how you could earn additional money. Where will you find the time? Or energy? If you fall into this category, this option may not be for you; but wait. Are you being honest? Are there things you can, and would, give up to earn more money? Do you currently volunteer for a group that you could beg off of for awhile so you can pick up a temporary second job? Do you rush home from work to make meals for the family when someone else could get things started so you could put in some overtime? Can your household adjust to a different schedule so you could pick up extra money in a shift differential? How about some temporary work just over the Holidays, like gift wrapping? Are you a clever baker? Could you make and sell cookies at your local grocery store? Could you tutor students after school? Does an office building in your neighborhood need a weekend cleaning person? Are you currently making something that other people would buy? Take a look at your schedule. If you knew that you could do something to make extra money, and you knew that it was temporary, would you do it? I believe it’s something worth considering.
7) Carefully, Very Carefully, Check Out Debt Consultants.
The one thing that has changed since 1992 is the use of credit card debt consultants. There are hoards of companies out there today trying to sell you the light at the end of the proverbial debt tunnel. But be careful, the light could be an oncoming train, because not all debt consultants are what they appear to be. If you decide to look into using a debt consultant, interview as many as you possibly can. Ask direct questions, don’t beat around the bush. Ask how much of your money they are going to keep before they pay your creditors. If a debt consultant says things to you like, “don’t worry about that” and “it will be okay”, start worrying about that because it won’t be okay. Listen to your gut, ask people who have worked with a consultant for a recommendation, and check the Better Business Bureau. It will cost you more to hire a third party debt consulting company than it does to negotiate directly with the credit card companies. Consider first checking into non-profit debt consulting groups. Your own bank may even have consultants free of charge. Here again, you must do your homework thoroughly. You don’t want the solution to be worse than the problem!
Back to the 1992 credit card market versus the 2008 credit card market. As they say, The More Things Change, The More They Stay The Same. Handling your money comes down to the same sound economic advice that it has for centuries, and yes, your grandparents were right – Don’t spend more than you have, and save a little each week.
Are you ready to get rid of your credit card debt? Now, of course, credit was too easy for too many people for far too many years. We all fell into that, so don’t beat yourself up about it. But, do you want the credit card companies to continue to reap the benefits of that soft market when you’re struggling to meet your monthly bills? Many of us find ourselves with the difficult and long drawn-out task of getting ourselves out of debt, and staying out of debt. The methods outlined here are pretty basic; the same now as they were back a decade or more ago. We know they are tried and true. We know that if you develop a good financial plan and stick to it you will accomplish your goal of credit card freedom. Okay, now everyone, nose to the grindstone and hang in there!