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Ways To Overcome Credit Card Debt

by: sahil | last updated: August 25, 2009
Category: Personal Finance | Tags: Credit card debt, Credit cards.

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Ways To Overcome Credit Card Debt

Credit cards have definitely made life easier for many people around the world. However, it is also true that many people find themselves in credit card debt and are stuck in the perpetual net of paying interest and payments towards the card. This is not just due to the recent recession. Many people were in credit card debts even before the recession reared its ugly head. Some tips may prove helpful in successfully overcoming the looming mountain of credit card debt that many people face.

HELOC. This option will be provided by many personal finance advisors. HELOC (Home Equity Line Of Credit) is an option but not without its own risks. If you file for bankruptcy and use the house as a back-up for credit card insolvency then there is a good chance of foreclosure. The bank can simply kick you out of your home and foreclose in order to recover the amount.

401 (k) loan. The 401 (k) loan can be used to pay off the credit card debt. This is a good option since you can also avoid income taxes as long as you pay off the loan in time. However it is not advisable to sell 401 (k) assets and cash out. This may lead to financial hurdles in the future.

Roth IRA contributions. The Roth IRA contributions can be taken back for settling the credit card debt. You can take out the complete amount minus the interest. Moreover these are tax free and will not cause adverse tax penalties to come into force.

Stocks and bonds. Stocks and bonds can be sold in order to secure finances to pay off the debt. This might mean letting go of long term profit but credit card debts are far worse compared to a little loss on stocks or bonds. Even if you do not earn an interest or profit from selling stocks you will enjoy a credit free life.

Pay off the lowest debt first. This means that if you have more than one credit card debt then the best approach is to pay off the lowest of them all. Then the next one and so on and so forth; this is called snowballing in financial terms and is an effective method of relieving credit card debts.

Smaller payments. Try to pay off the debt in small payments. Maintaining a petty cash account will help since you can dip into it for making very small payments periodically in order to reduce the debt over the coming years.

Cut them. Stop using credit cards till you are out of the debt. The best way to ensure that you do not get into credit card debt in the future is to destroy the credit cards that you do not need and keeping the ones that you do. Use only one or two credit cards; the remaining can go to the wastebasket.

Get another job. Getting a part time job or a second job is a good option. Moreover it also increases the chances of rebuilding your credit ratings. This is because employment history also comes into picture when credit ratings are assigned. Many people may find it exhausting to work two jobs but sometimes extreme circumstances call for extreme measures.

Chapter 7. The best way of getting rid of credit card debt is to file for bankruptcy. However this will ruin the chances of getting any credit card for the next ten years and damage your credit ratings for at least seven years. One more point to consider is that during the Bush administration a law was passed that empowers banks to force the card holder to file for chapter 13 instead of chapter 7. Chapter 13 only postpones the debt by some years instead of wiping it off.