Photo by danesparze

Earlier in my article about the dangers of credit card debts, we saw how people can accumulate compounding debts, and realize it only when it’s too late. I have received a few questions about how to get out of debt when your credit card balances are already in the red; today I like to share some tips to get out of credit debt.

Other than investigating into credit debt cases, part of my experiences also include helping those under investigation to reduce their debts. Here’s some of the common strategies that we employ to reduce credit debt.

1. Debt Reduction Goals. The first step is to understand how much debt you are really in. Chances are you have a few credit cards for the debts to accumulate into tens of thousands of dollars. As the balance for each statement is just a fraction of the full debt, you need to consolidate your statement balances.

This is an emotionally straining exercise. It’s like forcing yourself to face up to the ugly reality. If you can’t get yourself to do this, ask a family member or trusted friend to do this for you. Think of it this way; it’s better than being an ostrich (which hides its head in the sand when the lion is near).

2. Repayment Plan. After knowing your amount of debt, work out a monthly repayment plan. The goal of the repayment plan is to decrease your principle each month, on top of the interest payments. Tally up the various monthly payment for each credit account and see if your income can fulfill these obligations.

3. Consolidate Your Debts. If you have credit debts spread over many credit cards, consolidate your debts by transferring your credit balances to one or two personal lines of credit or personal loans. This enables you to have better visibility over your full debt and manage it more easily.

4. Reduce Interest Rates. Most credit cards charges 24% per annum interest rate, while most personal loans have lower interest rate (depending on actual loan sum and period). By consolidating your debt into a few personal lines of credit, it will help to reduce your interest obligations as well.

Where possible, consider the option of taking up a secured loan or personal loan from family, as that helps greatly too.

5. Cancel All Credit Cards. I hope this one is obvious. Having many credit cards just creates too many opportunities to accumulate debts. Cancel all your credit cards. If you really need it, cancel all except one.

6. Review Expense Budget. No matter how successful your repayment plan is, your debt is not going to reduce unless you stop overspending. Start to track your expenses and review what are the ‘must-have’ and ‘nice-to-have’. This may mean a perceived downgrade in your lifestyle like frequent visits to posh restaurants, shopping sprees on branded goods, but it can be done. You just need to focus on what’s truly important for a fulfilling life.

7. Get Emotional Support. This is probably going to be an emotional period for yourself, as you face stress, temptations to spend, and disappointment in a downgraded lifestyle. Having supportive family members and friends around you, who understands the situation, and what you are trying to achieve will provide the moral and emotional support that you need.

Being out of debt is a form of freedom. Freedom to choose and do the things you really want to do with your life. Get out of debt today.

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