Worldwide Success

Credit cards can be excellent tools if used right.  First, you get the convenience and security of not having to carry large amounts of cash with you.  Second, credit cards provide many consumer benefits free of charge, such as extended product warranties, collision insurance for rental cars, purchase protection, and much more.  In fact, you can use credit cards to make money!   How do you do that?  Check out the article How to Turn a Credit Card into a Cash Machine.

The problem with credit cards is that if not managed properly they can easily turn into debt accumulation machines instead of cash machines.  It is so easy and tempting to just charge it!  If you don’t control your budget you can easily get caught in a downward spiral that gets deeper and deeper, and becomes harder and harder to recover from.  The average credit card debt for those that carry a balance is $5,100 according to the Federal Reserve.  Multiply this by the 1 billion credit cards in circulation in the USA and you can get a feel for the magnitude of the problem.

So how do you go about eliminating your credit card debt?  The obvious answer is to pay more than the minimum balance on each card every month.  But in order to maximize the effectiveness of your debt reduction program you should pay down the debt in the card with the highest interest rate first, then the second highest interest rate and so on.  To get started, list all your credit cards with outstanding balances in descending interest rate order.  If you don’t know what interest rate you are paying on your card, call the customer service number in the back of the card to find out.

Then, start paying as much over the minimum as you can on the card with the highest interest rate, and just the minimum on the other cards.  Once the first card is paid off, move on to the next card of the list and start paying as much as possible over the minimum on that card and continue to pay the minimum on the rest.  Assuming you are not accumulating additional debt on the cards, eventually you will have all of your credit card debt eliminated.  By following this approach you will eliminate your debt significantly faster than if you just pay the minimum amounts or even if you pay over the minimum but do follow the method suggested here.

Here is an example provided by the Vanguard Group:

Balance after 12 months:  $5,715 *

Balance after two years and five months: $0 *

* Assumes no further charges on the cards

Once you have paid off your credit cards the next steps is to eliminate them and only keep one or two cards for your convenience.  Take the extra cards, cut them in pieces, and throw them away.  Do not carry them in your wallet!

Eliminating your credit cards does not mean closing the account.  Closing old credit card accounts could shorten your credit history which accounts for 15% of your credit score.  The higher your credit score the more favorable rates and better deals you will be able to obtain from the credit card companies.  For more information on how to increase your credit score see the article Build Financial Success with a Strong Credit Score.

Eliminating your credit card debt is not rocket science.  It takes some discipline and perhaps some habit changes.  Using the techniques explained here will help speed up the process and save you money in the long run.

Independent Thought:

Although credit card payment mechanism has been under scrutiny by many banks and online businesses due to growing security threats, many customers still prefer visa and mastercard payment online. Due to this, there’s tremendous growth in credit card services like hsbc card services. Growing number of service providers has minimized the credit card fee and service charges. Of the major brands today, citi credit card, advanta card and discover credit card are among the ones used most.

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