Thursday, July 12, 2007

Credit Card Processing

Credit Card Debt: How To Get Rid Of It.
By Greg Mee

This method is simple, but requires some discipline.

First, you have to stop any new spending on your cards.

Second - you'll need to examine all of your spending. You'll
need to know how much extra money you'll be able to put towards
paying off your cards.

Credit card companies generally determine the minimum payment
to be 2 - 2.5% of the outstanding balance. So if you owe
$1,000, for example, your minimum payment will be 20 - $25 per
month.

Some part of that $25 goes to the interest on the balance, some
to pay off the actual balance. How much goes where depends on
the interest rate. Your credit card statement will give you the
exact numbers.

Let's say that $20 of the $25 goes to the actual balance. To
pay off $1,000 at $20 per month will take 50 months. Just over
four years. You'll also have paid $250 in interest alone.

Here's how you pay them off:

Look at the interest rates on all your credit cards. Take the
one with the highest rate. That's the one you're going to work
on first and we'll call it card #1.

After examining your spending you may have found some money to
put towards your payments. All of this extra money to pay off
your card debt goes to this one card. The idea is to pay as
much extra to card #1 as you can. Until it's paid off.

Pay the minimum balances on all the other cards until card #1
is done.

Then take the card with the next highest interest rate and add
to its payment the total of the payment you were making to card
#1. In other words, send the regular monthly payment you used to
send for card #1, plus any additional amounts that you used to
pay on card #1, plus the monthly minimum for card #2- all to
card #2. Do this until card #2 is done.

Then take the total you were paying to cards #1 and #2 and add
that to the payment on card #3, and so on.

Here's an example:

Let's say you have four, maxed out, credit cards. Each with a
balance of $5,000 ($20,000 total.)

Say the minimum payment on each card is $100 (yours may be
different) making your monthly minimum payment total $400.

Now let's say you have $500 per month to pay these off, which
you found through analyzing all your spending.

Card #1 has the highest interest rate and you'll send $200 per
month to that card and pay the minimums ($100) on each of the
others.

And you're not adding any new spending.

The extra $100 you're sending in to card #1 goes to the actual
balance of the card, not the interest. This will let you pay
that card off a lot faster. You might be able to kill this card
in two years, instead of 5.

Eventually, card #1 is dead. The entire payment, $200, that you
were making to card #1 gets added to the payment on card #2, for
$300 total. ($100 minimum plus the extra $200 from card #1.)

The balance on card #2 will be less than $5,000 since you've
been making your minimum payments all along. Adding the $200
from card #1 to the payment of $100 that you've been making to
card #2 will make this card go away much faster than the first
card did.

When card #2 is gone you take the $300 per month that you were
paying to #1 and #2 and add it to the payment on #3, which will
now be $400/month.

When #3 is done you repeat the procedure for card #4, but now
you're sending the whole $500/month to that one card.

Obviously this system will take years, but at the end of that
time you have:

* Four dead cards (hopefully you cut most of them up,)
* Spending and budgeting discipline earned from going through
the whole process, and
* $500/month to put into a savings account or where ever.

Good luck!

About the Author: Written by Greg Mee. For more help on
handling credit card debt visit
http://www.1-credit-card-debt.com

Source: http://www.isnare.com

No comments: