The easiest way to handle credit card debt is never to let
yourself get into debt in the first place. But if you've gotten
yourself in over your head, never fear: you can still eliminate
credit card debt
once and for all if you can follow a few simple steps.
Later in this article, I'll give you my simple four-step plan
to getting rid of your debt. But first, I want to warn you about
some of the things that credit card companies do that make it
harder than you might think to
get your debt paid off
It's a money game
If you've ever wondered why you get so many credit card offers in
the mail, the answer is simple: credit cards are a huge
moneymaker for the entire industry. On one hand,
) make their money by establishing
huge networks of merchants
that accept payments using credit cards and agree to the terms by
which those network companies reimburse them -- taking a fee off
the top, of course.
At the same time, issuing banks, led by industry giants
Bank of America
) , and
) , make their money in a couple different ways. They get a big
cut of every transaction you make through what's known as
, which get split between the issuer, the network, and the bank
that the merchant uses to authorize charges. These fees come in
regardless of whether the cardholder carries a balance.
But where issuers
make money is from interest charges from people who don't pay off
their balances every month. With rates still in the double-digit
percentages despite rock-bottom interest rates for most
investments, credit cards are a goldmine even despite customers
who default on their obligations.
4 steps to financial freedom
That's why once you're in debt, banks make it so hard to get out.
But you don't have to be trapped. Follow these simple steps:
1. Pay more than the minimum.
One of the most misleading ways that card companies keep you in
debt is to give you low minimum payments. Sure, you can pay as
little as that minimum, but if you do, it'll take you
before you'll even come close to paying down your balance. To get
out of debt, you need to ignore those minimums and devote all
your spare cash toward getting your total balance down as quickly
2. Focus on high-rate cards first.
Not all credit cards are created equal. Find out what your
interest rate is on all your cards with outstanding balances, and
focus your efforts on whichever card has the highest rate.
That'll help you bring your total interest charges down the
3. Go cold turkey, at least temporarily.
Another bad thing about carrying a balance is that you don't get
the grace period on new purchases that people get when they pay
off their balance every month. So to avoid taking one step
backward for every two you take forward, try to stop using credit
cards entirely while you're trying to eliminate your debt. At the
very least, if you have one available, use a card that you can
pay off every month so you can get the benefit of a grace
4. Don't lose steam.
It's tempting to take a break once you get one or two of your
cards paid off in full. But the better strategy is to apply what
used to be minimum payments on those cards toward your remaining
balances. Doing so will get your debt paid off even faster.
Moreover, even once you're done, consider using the portion of
your monthly income that you used toward getting out of debt and
apply it toward investing or building an emergency fund. You'll
find that it's far more rewarding when
getting the benefit of interest and dividends on your money
rather than letting your card company get all the spoils of your
Eliminating credit card debt isn't always easy, but the steps
to follow aren't complicated. Stick with this simple plan and
slowly but surely, you'll get yourself out of debt and never look
Once you're out of debt, you may want to start investing in
the same banks that got you into that mess in the first place. To
learn more about the most-talked-about bank out there, check out
our in-depth company report on Bank of America. The report
details Bank of America's prospects, including three reasons to
buy and three reasons to sell. Just click here to get
Fool contributor Dan Caplinger owns warrants on JPMorgan
Chase. You can follow him on Twitter @DanCaplinger. The Motley
Fool owns shares of Bank of America, Citigroup, JPMorgan Chase,
and MasterCard. Motley Fool newsletter services recommend Visa.
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