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.

Last week, I spent some time on the phone with Scott Bilker from DebtSmart.com. We talked about the debt challenge and what the best next steps are after hauling out all of the bills and making a list of debt. Since most people don’t know what they owe – and many get overwhelmed and bury their bills without even looking at them – that list is an important first step.
 
He told me that the list should include more than just the bill and the amount owed. Make a chart that includes the following:

* The name and payment address of the account
* The total amount owed
* The minimum amount due each month
* The due date (but remember that this can change from month to month)
* The interest rate
* The repayment terms
 
That’s a lot of detail, but it will help you get a handle on how you are going to repay your debts. It’s usually a good idea to start out with the highest-interest debt and pay that off first. So, once you create your list, put it in order of interest rate, from highest to lowest. The name at the top of the list is the one that we’re going to tackle first. That’s what I thought, triumphantly, until Scott corrected me.

“But what if your income is $4,000 a month and your debt payments are $5,000 a month?” he said. Hmmm…that was a situation that I remembered being in shortly after college. Between student loans, a new car loan, rent, commuting expenses, and all of those credit cards I’d accumulated during my undergrad years, even if I had a plan, I wouldn’t have been able to afford it.

So, Scott told me this great little secret: Credit card companies want your business. And when a company wants your business, there’s room to negotiate. So, he told me that you can call the credit card company and ask that your interest rate be reduced. You simply call the customer service department and tell them that you would like your interest rate reduced. If you have decent credit and can qualify for another card on which you can transfer your high-interest balance, you’ll have plenty of leverage. You can often get your interest rate reduced a few points even if you’ve got late payments in the past. Say you’re paying 20 percent on a $5,000 balance and $200 per month in payments. That will take 33 payments to pay off, and cost $6,600. If you renegotiate that rate to 17 percent, then the payment time is 31 months. That saves two months, or $400 in interest payments, which can then be applied to paying down debt. 

So, by the end of this weekend, get your list together and choose the debt you want to tackle. By Monday, call the 800-number of your credit card company and ask for a better interest rate. Tell us your results in the comments section. I’ll take any questions you have to Scott and see if we can take advantage of his excellent experience in debt reduction.

Meantime, read this excerpt from his book, which is truly inspirational. 
 

If you’re trying to reduce credit card debt, almost every expert will tell you that the first thing you should do is to ditch your credit cards and use cash for purchases. But who wants to carry around huge wads of cash? So, the next best thing is a debit card.

Or is it? The U.S. Public Interest Research Group publishes some key problems with debit cards here: http://www.pirg.org/consumer/banks/debit/debitcards1.htm. Aside from the increased liability in case of theft – as much as $500 vs. $50 maximum for a credit card — the biggest issue for consumers is the practice of blocking. When you use a debit card for a transaction that isn’t a fixed charge – for example, a hotel room or car rental – the merchant places a hold on a “block” of cash. So, a $100-per-night hotel room might put a hold on $125, $150 or more of your cash for several days. Use the debit card frequently on vacation and you could find a significant percentage of your funds blocked – sitting there in your account, but unavailable to you.

Credit cards definitely have their place, but must be used with restraint. If that’s not an option, use your card to withdraw the cash you need, as you need it, and pay as you go. That will keep your funds liquid so you can enjoy your time away.

If you’re a card-carrying member of…whatever…it could save you some bucks.

AAA card: The venerable automobile membership club will not only haul your heap off the side of the road if it breaks down, it can also score you some savings. Earlier this year, I stayed out of town for a wedding. The AAA rate for members was actually cheaper than the block room rate for guests. Go to www.aaa.com, enter your zip code, and select “Savings.” You’ll see offers for everything from 20 percent off movie tix to 35 percent off some theme park admissions to special promotions with retailers like Barnes & Noble and Target.

Alumni card: Just because you got a degree from a particular school, you may be eligible for savings, especially on insurance and travel services, which seem to be two of the biggest areas. For example, my alma mater offers graduates discounted insurance plans and has an agreement for discounts with a national moving company. Other offerings I’ve seen include discounted hotel offerings, hotels, car rentals, books and others. Contact your college’s or university’s alumni club and see what bennies they offer their graduates.

Credit cards: If you’re just using your plastic for purchases, it’s time to look again. Some credit cards have special offers and spiffs just for being a customer. For example, AmEx offers its Gold Card members special deals on and early access to shows and events. At this time, Visa is offering deals with everyone from Omaha Steaks to Shoes.com at http://www.usa.visa.com/personal/discounts/index.jsp.

Got another card-based saving tip? Please share!

Like most everyone, I’m working on having zero credit card debt, opting to pay with paper instead of plastic. So, I was pretty shocked when I spoke to credit card guru Scott Bilker, founder of www.debtsmart.com, who told me my interest rates could be raised even if I don’t use my cards.

Scott says that inactivity can trigger an interest rate hike. This is yet another reason why it’s important to read that long statement printed in 3-point type, otherwise known as your credit card agreement. If you find that your rate might be raised on a quiet card, there’s an easy fix: Make a small purchase on the card once a month and pay it off in full.

Scott’s book, Talk Your Way Out of Credit Card Debt, is a great primer on doing just what the title says. He says that old advice about calling the credit card company and asking them to lower your rate or waive a late fee really works.

“You can often get some sort of concession from the issuer,” he says. “Card issuers want to retain you as a customer if at all possible, since it costs them money to replace you.”

Apparently, the card companies aren’t the only ones with a few tricks up their sleeves.