Credit Card Debt Reduction

Debt Continues To Grow

Concerns over the growing debt problem in the U. S. are justified. Part of the reason for this legislation is to slow the growing amounts of debt and instill an incentive to pay down existing debt.

There’s no doubt spending will increase, Some business owners will continue to finance their businesses with credit cards. But a method is needed to knock down the outstanding balances of credit cards faster than even paying increased minimums.

Enter The Payment Push Plan

What the push plan does is attack your credit card balance at a scheduled time that has the most impact. It’s a simple strategy. First get your cards and determine the due dates of their minimum payments. Then make a chart or spreadsheet for a second payment scheduled 14 days after the due date.

What this does is reduce the interest charged. Most credit card companies use a formula that adds purchases and interest before deducting for any payment made. Minimums have the same effect as a mosquito hitting a Mack truck.

However, sending a second payment does a lot for credit card debt reduction. Even sending an additional 26 half payments, one every two weeks, will result in an additional 13 monthly payments for the year, lopping off interest charges and principal. Adding a double minimum payment equals an additional 26 payments. Triple payments equals 36 extra payments. In other words, by making payments more often, you reduce the amount of principle to which interest is applied, and over the course of a year, that can mean paying off your credit cards months, if not years, earlier.

Crunch The Numbers

Working these figures out on a spread sheet, you can quickly see the results of these double, triple or quadruple payments.

You can either choose to attack the largest account balance, or the one with the highest interest rate (sometimes these are the same). Or you can choose to attack a small account with the goal of zeroing it out for the quick gratification it provides. You can also attack everything at once, but odds are good if you have a lot of credit card debt, a all-out attack is not in the budget.

Why Credit Card Debt Reduction Plans Work

The reason a second payment has an impact on credit card debt reduction is that it knocks down the interest charged. Even small amounts reduce the debt. Paying a second payment equal to or greater than the minimum will reduce it even faster. A computer spreadsheet can quickly show you how. The more you chip away at the principle, the less interest you will have to pay over the life of the debt. Accelerating your payment schedule can reduce your repayment time by 50% or more depending upon the amount of the second payment.

Of course, it would help not to accrue any other charges on top of what you’re trying to pay off now. But if you are using your credit cards as a self-financing tool, then you may need to take purchases and divide them, say by three, and add this additional amount as part of your second payment.

Debt Reduction Payment Plans Ain't Easy

This takes discipline. The payments must be mailed no matter what. Snail mail is subject to processing delays of as much as five days. Online bill payments work better and allow for tighter control with the payments being made on your computer, usually arriving in 2-3 days. No matter the method, add 2-3 days processing time once the payment reaches the creditor.

Keep records as to when you make the payments since your credit card statements will not reflect the extra payments you’ve made, falling outside of the statement’s reporting period.

Leave Those Paid Accounts Open

It’s important not to close long-standing accounts once the you pay them off. If you do, two negatives can occur and decrease your credit score. Closing an older account will decrease your credit score because your credit history factor will be reduced. Second, closing the account prevents you access to a credit line, and that will raise your debt-to-available credit ratio.