Managing Debt

If you have significant debt from credit cards or other loans, follow the steps below to pay off your debt. Begin by reviewing the number of credit cards you are using, the interest rate of each, and the amount you pay annually for fees. Do the same with any loans you may have. Then take the following steps. 
  1. Make a list of your outstanding debts. Here's a case where knowledge is definitely power. The first step in trimming your credit debt is to figure out just how much you really owe. Don't forget to include: educational loans, home improvement loans, checking account overdrafts, passbook loans, personal loans for insurance, taxes, or travel, rent-to-own agreements, and other installment purchases. Use one of two systems to organize your information: size of debt or annual rate of interest.
      
  2. Decide which debts to pay first. Here are several strategies for deciding. Choose the one that works best for you. Any of the three will result in significantly diminishing your debt and improving your credit. THE MOST IMPORTANT THING IS TO CHOOSE ONE AND GET STARTED!
     
    • Compare the debts with the highest interest rate to the debts with the lowest rate. Start paying more than the monthly payment for debts at the top of the list, which have the highest rate of interest, then move down the list�or�
       
    • You can choose to pay off bills with the lowest balance due. For example, if you owe only two more payments on your furniture or car, you may want to pay those off as soon as possible. Once you pay off a bill, add that amount to your payment to another creditor�or�
       
    • Another option is to pay the debts that are most important to your credit rating or to keeping your family safe. For example, you may need to pay you electric bill to keep the electricity from being turned off. Maybe you need to pay for you car to keep it from being repossessed. The consequences of not paying other bills may not be as bad, and they can wait a while. If you owe on store and bank charge cards, you should try to make some payment on them each month because these businesses report monthly to a credit bureau, and nonpayment will affect your credit rating.
       
  3. Shop around for credit cards and loans with the lowest interest rate. Lower interest rates are available for good customers, but you have to request it. Switching from a card with 21 percent interest to one with 14 percent could mean a savings of $50 or more per month. If you decide to transfer your outstanding balance from a high-rate card to a low-rate card, ask the new bank to waive the transfer fees. Be sure the new card's low rate is for more than just a few months. Do your homework and shop for cards with the lowest rate. Check www.bankrate.com for a list of credit cards with low interest rates. Sometimes the solution may lie close to home; family or friends may be willing to give you a low interest loan to pay off your high interest credit cards. If you set up and service that loan at www.circlelending.com you get something more than a low interest rate, you also get to build your credit because CircleLending reports payments on private loans to PRBC.
     
  4. Pay off some debts with your assets. Do you have money in a savings account or money market account that earns only a small amount of interest? If you apply those same funds to your debt, which may be as much as 21 percent interest, you are saving at least 15 percent. While using your savings to pay off debts is a good strategy, always remember to keep some savings for emergencies-at least six months of living expenses in an emergency fund.
If you need help managing your debts, contact a nonprofit credit counseling organization for assistance.

Additional Resources...

Set up a Budget The AICCCA
The Association of Independent Consumer Credit Counseling Agencies offers a Directory of Members of the Association of Independent Consumer Credit Counseling Agencies. These groups provide counseling services nationwide.