I saw a story on Yahoo Finance about a New York City couple with 13 credit cards and $88,000 in debt. They followed a plan and now three and a half years later, they are completely out of debt.
Carol and Don finally decided that they had to change things and get out of debt once and for all. They went to a Credit Counseling Service which went over their debt, their living expenses, and their spending habits. A five-year payment plan was set up. The couple cut up their credit cards and used only one bank card between them. They paid double the minimum on each card, and each time one was paid off, they switched the extra money to the next card. Payments took about 30% of their take home pay. Any extra cash from bonuses or tax refunds was applied to the credit cards.
What Don and Carol did right: They realized they had a problem, and together they decided they were going to solve the problem and become debt free. They sought help from a non-profit counseling service. (In Colorado Springs, you can dial 211 and ask who to call.) Avoid those companies that advertise they can perform credit miracles. They followed their plan to the letter. It was difficult for them, but they buckled down and did it.
My input: Don’t cut up a credit card until it is paid off – I suggest putting the card in a bowl of water and setting it in the freezer. When the account is paid off, you must formally cancel the card with the company. After it is cancelled, you can then unfreeze the card and cut it in half. Shred both halves.
Getting out of credit card debt will give a big boost to your family finances, and that will make possible a better and less stressful life. It also will improve your credit history and increase your credit score. A good credit score will give you lower interest rates on everything from car loans and mortgages to the price you pay for insurance. Experts say that your credit history and score matter more now than they did before the financial collapse of a few years ago. Bottom line: fix your credit problems sooner rather than later.
Source: Carole and Don Carroll: Debt-Free After 30 Years by Emma Johnson, Thursday, October 7, 2010 Yahoo Finance