University of Illinois Extension

Get Rid of Credit Card Debt

Using a credit card is an important responsibility. A good credit history can help you get a job, make major purchases, and accomplish many short and long-term goals. A poor credit history can make it harder for you to rent an apartment, buy a car, or fulfill a dream. It is important to know how credit can change your spending power and how you can recognize the danger signs of credit and avoid serious problems.

The greatest disadvantage of credit use is losing financial flexibility in managing your own money. For example, if your credit card debts take 10 percent of your after-tax income, you can't spend those dollars for something else. Credit cards can reduce your future buying power if you carry a balance and let finance charges build up.

How can you get rid of your credit card debt? The first thing to do is get all your credit card bills together. For each account, write down the total balance and the minimum monthly payment required.

Prioritize Repayments

The next step is to be sure you can make the minimum payments on your credit cards. Look at your spending and make cuts where you can to find the money to pay your credit card bills. If you have trouble doing that, the National Foundation for Credit Counseling (1-800-388-2227) or Myvesta.org (1-800-698-3782) can help.

Credit card companies require a minimum payment each month. If you pay only the required minimum payment, it can take a very long time to clear your balance. For example, if you have a $2500 balance at 21% interest and you pay 2% of the remaining balance each month (a typical minimum payment), it will take you more than 63 years to pay off your debt. It would cost you $14,699 in interest charges.

Plan to do more than just pay the minimum. If you pay $50 each month for the example above, it would take you 10 years to pay off your $2500 balance and cost you $3493 in interest charges.

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