Did you do the list that we discussed in the last Debt Challenge post? If not, I encourage you to spend some time outlining your debt, however tough that may be.
Once you have a handle on your debt and interest rates – the ones you reduced by calling the credit card company – Scott Bilker from DebtSmart.com says it’s a good idea to begin tackling debt from highest interest rate to lowest. So, if you have a card on which you’re paying 20 percent or more, let’s tackle that one first.
If you’re paying 22 percent on a $5,000 balance, making $100 payments each month, it’s going to take you 137 months to pay off that loan. If you up your payment by $50 per month to $150, you’re down to 52 months – less than half of the time. If you are able to talk your way down to a 19 percent rate and you increase your payments to $150, you’re down to 48 months. So, it clearly pays to attack your debt from highest to lowest.
Scott has a good Q&A on this subject, as well as tips on how to get a free debt reduction worksheet.
But what if you’re in too deep to even make the minimum payments? You still have a few options:
First, you could call the credit card company and work it out. Scott says you’ll have the best chance of negotiating a better deal with your bank if you have these three ways/things ready when you call:
(1) A deal-breaker. You need to know the deal you want and what you will do if they don’t give it to you. You can often find great deal-breakers in your mailbox. Use a low-rate offer from another bank and tell the rep that you’ll transfer your balance if they don’t reduce your rate or waive that fee.
(2) Persistence. When you call, expect to be on hold for a while, but don’t give up! Also, be ready to ask to speak to a supervisor if the first rep cannot do what you want.
(3) Confidence. Remember that you are in control! Reading through the calls I made will help prepare you for most call scenarios/situations. More details and script are here.
You can also contact a nonprofit credit counseling service. If you simply can’t handle the debt on your own, this is a better option than ruining your credit or declaring bankruptcy. These organizations work directly with credit card and other loan companies to create a payment plan for you to pay off your debt. Scott has some great tips about finding a good one here.
So, how much are you going to reduce by January? Don’t worry – in the coming weeks, we’re going to give you some great ideas for dealing with holiday expenses.
Share your debt challenge story or goals with us in the Comments section.
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wow! you know i completely forgot that i read the first column yet it snuck in my brain somehow as i have DONE ALL OF THESE THINGS! yay!
i called and got my one (thank goodness only one) card down to 7% and plan on calling again next month and see if we can go a tad lower. i have never been late on a payment, just never made a payment big enough to pay it off.
what’s amazing is we make what most people would consider a good living. And yet we are scraping by each paycheck. Are there any other ways to reduce costs for some of the other living expenses?
For example, i think this is finally the year i am going to ask for my gas bill to be spread out all year instead of just during the winter months as they can get as high as $300/month. thats a huge hit to the ol’ budget!
Kate | November 1st, 2007 at 6:09 pm
Rock on, Kate!!!! Good for you for getting your rate reduced.
Going on a budget plan is a great idea for managing payments, but don’t forget that you need to practice energy reduction tactics to really save money. You can also do this with your electric bill.
Have your energy company come out and do a (free) audit. They can give you pointers on saving energy — and saving $$.
One thing that Scott recommends is to track every penny you spend for a couple of months. This was eye-opening for me. (The convenience store is a bad place! I rely on it way too much!)
Actually, let me organize my thoughts — and do some other digging — and I’ll do a post on this early next week, okay?
gwenmoran | November 1st, 2007 at 6:13 pm
awesome! Actually i know why it is so high - we have a really old house with crappy insulation and original 50’s metal casing (casement?) windows. you can literally feel a breeze of cold air! so since i can’t afford all new insulation and windows, i am trying to use heavy curtains and blinds to keep the heat in and the cold out!
Kate | November 1st, 2007 at 8:10 pm
Well, I haven’t called the companies to reduce the credit cards, but I shouldn’t need to. The only one that hurts a bit is one that’s at 6.99%, permanently. This is the one that has a credit limit of “Oh, your car broke? Here, go buy a new one.” And its coming down.
But we have a plan.
I was recently out of work due to job action for 12 weeks. And what we proved was that we could live on his income alone. I started tracking expenses on a quick and dirty spreadsheet that lets me add categories as necessary. There are two spreadsheets attached to it: one of when all the bills are due and estimated amounts and one of the debt.
So you want to know the plan? We can live on his income. We both get paid twice a month (him on the last day of the month and the middle of the month; me every two weeks). The mortgage is the big bill that has to be paid every month and comes out of his cheque. Bills come out of mine - and the second paycheque every month will go completely to debt repayment. I paid off one card last month; the rest (except for the “new car” card) will be paid off in 2-4 months each. We’ll be reduced by about 4000 by January (I have some payment for contract work coming too that goes to the debt).
Nicole | November 3rd, 2007 at 4:18 pm
Hi folks
I’m in the process of taking out a loan with Lombard Direct and I understand that they are owned by the Royal Bank of Scotland and I was wondering if anyone knew if they were based in the UK or in Italy in the Lombardy Region?
Can anyone shed any light on this?
thanks
SWomack | December 1st, 2007 at 7:16 am