If your cash ran out before your shopping list did, you probably relied on credit cards this holiday season. It’s time to develop a plan to tackle the debt before it grows out of control, says a University of Georgia financial expert.
The first step to eliminating credit card debt is to make a detailed list of your debts, including the balances, annual percentage rates and minimum payments for each. Don’t include your mortgage, said Michael Rupured, a financial management specialist with the UGA Cooperative Extension.
Concentrate on one
Pick one debt to use any extra money to pay down first. This should be the one with the highest APR. Make the minimum payment on all other debts until the first debt is gone, he said.
"As you pay one credit card or other debt off, add that payment amount to another debt payment," Rupured said. "So, if you have seven debts with a combined monthly minimum payment of $725, continue to pay $725 until you have repaid all seven debts."
Increasing your monthly debt payment by as little as $25 can knock several months off your debt repayment time, he said. Rupured also recommends applying any unexpected income to your debt repayment.
"Put tax refunds, bonuses, gifts or prizes toward your debts,” he said. “You’ll obviously pay them off even faster.”
Request a lower rate
One way to reduce interest payments is to request a lower interest rate from your credit card company, he said.
“If you’ve paid on time and have had the card for a year or more, there’s a good chance they’ll lower your rate,” he said. “One thing’s for sure. They won’t lower the rate until you ask. You really have nothing to lose by asking.”
Making a concerted effort to pay your bills on time will also save you money, Rupured said.
Don't be late
“Punitive rates have climbed dramatically and can be triggered more easily than in the past,” he said. “Being late even one day can result in a higher interest rate and you’ll have to pay on time for six to 12 months before you’re eligible for a lower rate.”
Paying late will also result in late fees which are typically $25 to $35.
“The biggest factor in determining your credit score is your payment history,” Rupured said. “Paying your bills on time is the single most important thing you can do to improve a low credit score.”
If you're behind on your bills or having a hard time making the minimum payments, Rupured suggests seeking help.
Nonprofit credit counseling agencies can help you develop a debt repayment plan that fits your budget. To find an agency, look for credit counselors in the Yellow Pages of your phone book.
If most of your debt is on credit cards, Rupured says the true key to getting out of debt is to stop using them.
"Keep one card for travel and emergencies if you have to, but leave it at home in a safe place until you need it,” he said. “Cut up all your other credit cards and close out the accounts. This way you won't be tempted to ask the company for a new card.”
(Sharon Dowdy is a news editor with the University of Georgia College of Agricultural and Environmental Sciences.)