The word we all hate to think about: Debt. As much as we want to avoid dealing with debt, it is important to face it head on and resolve it. ComparedForMe.com offers specialized articles that dig deep into specific issues surrounding debt; however, in this section, we have compiled the most frequently asked questions about debt. Take a look below at the questions consumers are asking on a daily basis when it comes to debt.
Q: Which debts should I pay off first?
A: When you have debt coming from multiple sources, it is important to pay off the debt with the highest interest rate first. Credit cards usually charge the highest interest rate, so the more you pay off per month, the better. Do your best to pay off as much as the total balance as possible—not just the minimum payment. Paying more than the minimum payment each month will get you out of debt even faster. If you are paying off multiple sources of debt at the same time, pay the minimum for the others until you get your credit card debt squared away.
Q: Is there a way to negotiate a lower interest rate on my credit card?
A: Yes. Do yourself a favor and call your credit card company directly. If you pay your monthly payments on time and are a customer in good standing, you have a legitimate shot at getting your interest rate reduced. A helpful tip is to tell the representative you are speaking with that you are considering other credit card companies that offer lower interest rates; hinting that you are open to taking your business elsewhere may help you close the deal. Use those negotiating skills—you may be surprised at how successful you can be in getting what you want!
Q: What is the difference between debt settlement and debt consolidation?
A: Consumers use debt settlement and debt consolidation to ultimately achieve the same goal: to pay off their debts; however, there is a difference between the two approaches. Debt settlement is the process of negotiating with creditors to accept payment that is less than the full amount of debt owed. The settled debt amount must be paid off in one lump sum payment. Debt consolidation involves taking out a loan, usually at a lower interest rate, to pay off debt. You basically borrow a large amount of money in a single loan from one lender in order to pay off several smaller debts.
Q: How does my debt compare to the average American household?
A: According to research done in 2008 by Experian, one of the three major credit card bureaus, the average American household carries approximately $8,000 in credit card debt alone. If you add the debt they have accumulated from car loans and other sources, the average totals $16,600.
Q: How many credit cards is “too many” to have open?
A: The average amount of credit cards the American household has open is a whopping nine. Simply stated, the higher number of credit cards you have open, the more likely you are to increase your debt. The higher amount of debt you accumulate, the more likely you are to decrease your credit score. It’s a vicious cycle! It is important to remember that every time you open a credit card account at a department store, for example, you knock approximately 20 points off your credit score. Many people do so to take advantage of the one-time 15-20% off the store is offering upon opening an account. You need to ask yourself how often you actually shop at the store—are a few dollars off a purchase worth lowering your credit score?
Q: When should people consider bankruptcy?
A: People often consider bankruptcy to escape from credit card debt. When you declare bankruptcy, you are essentially getting rid of your outstanding debt. You have to pay your debt over time; however, with court protection, you will stop receiving harassing phone calls from debt collectors. Bankruptcy should be viewed as a last resort. It ruins your credit and can have harmful effects on your future. If you go to get a loan, apply for a job, or rent a new apartment, the people considering doing business with you will see the negative effects that bankruptcy had on your credit score. If you have done everything in your power to budget more effectively and have explored the various credit counseling options available to you—and you still cannot pay your bills, it is wise to speak with an experienced bankruptcy attorney.
Q: What is the best strategy to get out of debt?
A: The best strategy you can use to get out of debt is to take action. Though debt often seems overwhelming and can cause you severe mental stress, you have to take a second and breathe. Accept responsibility for your situation, and tackle it head on. First, do everything in your power to stop using your credit card. If you have to leave it at home or cut it up, do it! The less temptation you have to use it, the closer you will be towards reaching your goal. Second, make more than the minimum payment per month on your credit cards. Credit cards use the suggested minimum monthly payment as a way to keep you in debt longer; if you simply pay the minimum each month, you will find yourself drowning in finance charges. Paying the minimum is certainly better than nothing; however, your best bet is to scrape together as much money as you can to put towards paying off your total balance every month. Click here to compare debt relief options.
