Credit cards

Monday, January 26th, 2009

First of all, thanks to everyone who came to my author talk at the Danbury Library yesterday.  We had a great time!  Please check out my other upcoming radio/library appearances–we continuously update them to keep you informed!

 One of the topics we talked about yesterday was credit cards.  For many folks, credit cards were problematic before all of the economic upheaval in the U.S.  Now they are downright overwhelming.  Which, among other things, means that the vultures come out.  I am talking about those companies that promise to get rid of your credit card debt and/or help you declare bankruptcy, charge you an arm and a leg to do it, and then you are left with the wreckage of their help.  Instead, here are 3 ways to help get yourself back on track:

 There are several players in the get out of debt arena that are honest, trustworthy, and can actually help you get the job done. However, no method will be successful without commitment on your part to take charge of your debt, get rid of it, and never let it happen again.

Provider: You (as in DIY Credit Card Management)

Website: None

What it is: You take control of your debt by calling each of your creditors and negotiating a lower interest rate or a better payment plan. Then you stick to the plan and knock out your debts one by one. If you are nervous about negotiating, go back to the “Ask, Ask, Ask” chapter.

Pros: No additional cost other than your current interest rates. Negotiating on your own saves you money as well as keeps your credit report cleaner since you do not use a service to manage your debt. It’s also very empowering!

Cons: This method requires a large amount of self-discipline, motivation and organization. Take notes on everything that you do, who you talk to and before paying anything to anyone, get the deal you made in writing.

Provider: Dave Ramsey’s Financial Peace University

Website: www.daveramsey.com

What it is: A guide to getting out of debt using Method 2 above. This is for folks who want to manage their own debt but don’t know where to start. You can purchase Ramsey’s book, The Total Money Makeover for about $20 (or borrow it from your local library) or his entire Financial Peace University Kitfor about $150. If you buy the kit, you are also entitled to attend any of the Financial Peace classes held around the country for free as well as have lifetime access to his financial counselor hotline.

Pros: A relatively inexpensive way to organize your finances and get yourself out of debt. There’s no going through a debt consolidation process and no further trashing of your credit. Free lifetime phone support comes with the plan. It’s straightforward, easy to follow, and generates results. Consider it a financial lifestyle change instead of a financial diet.

Cons: Quality of Financial Peace classes can vary greatly. You must be able to focus and practice much self-control to make this method work.

Provider: Consumer Credit Counseling Services

Website: www.cccsinc.org

What it is: One of the few legitimate companies dedicated to helping you get out of unsecured debt. They are a non-profit organization that works to lower the interest rates on your debts (not the debts themselves) and consolidate your payments. They provide free credit counseling and budgeting; you only pay if you decide to use their Debt Management Plan. You write one check to them and they send it to your creditors. You can also discuss bankruptcy options with them.

Pros: Lower interest rates on your outstanding debts mean that you can get yourself debt-free sooner. Not as damaging to your credit as companies who perform debt negotiation, or reduction of the actual amount owed. They also work with you to create a budget and keep you out of debt in the future. The low monthly cost to be in their program is dictated by individual state law: the highest monthly fee they can charge is $50/month, but many states are in the $15-$25/month range.

Cons: If you do not control your spending, this is like a financial diet as opposed to a lifestyle change. Also, if your interest rates are already low but you have a high amount of debt, their services will not be very helpful to you.

If you are in a bad credit card situation, promise yourself today that you will use one of these tools to get you back on track.  My heart goes out to you–you can do it!!

Copyright 2008-2009 Kristin Delfau, author of Turbo-Mom's Guide to Saving Money Without Wasting Time a womens' personal finance book, and Aji Publishing.

Tags: credit cards, Dave Ramsey, interest rates
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