Credit debt can be managed — with care

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 While recent reports indicate that credit card debt had declined over the last year, much of this decline is due to financial institutions writing off delinquent debt and not due to consumers reducing the amount they owe.

A study from Nerd Wallet indicates that the average household still carries $6,772 in outstanding credit card debt and paying down debt is an ongoing struggle for many consumers.

“Many consumers use credit cards without considering the long term impact it can have on their finances,” said Mechel Glass, vice president of community outreach for CredAbility. “Interest and finance charges add up fast, and for consumers making only minimum payments or who have even a single late payment, rising balances can quickly outpace their ability to pay.”

A person with $6,500 in credit card debt at an 18 percent interest rate will take 25 years to pay off their debt if they only make the minimum monthly payments.In addition to the $6,500 principal, cardholders will pay an additional $9,173 in interest, meaning that your $6,500 in purchases will cost you $15,673.

And that assumes that you don’t use the card to make any additional purchases. (This example includes a payment equal to interest plus 1 percent of the balance).

Just like every other resolution on your list, eliminating credit card debt requires focus and commitment. CredAbility offers the following tips to help consumers:

Cutting up your credit cards is one way to ensure you won’t use them.

Before you make any purchase, ask yourself “Do I really need this? Can I pay for it with cash?” If you answer no to either question, skip the purchase.

Resist the temptation of credit card offers. Shred these offers without opening them and you will be less likely to be tempted by zteaser interest rates or offers to consolidate your credit card bills. You can further reduce these offers by requesting that your name and credit information not be provided to financial institutions. You can do this by calling 1-888-5-OPTOUT (1-888-567-8688) or online at http://www.optoutprescreen.com.

Create a repayment plan. You might choose the card with the highest interest rate as the one to pay off first.
Perhaps you have a small balance on a couple of cards. Paying those off first may provide you with a sense of accomplishment and help keep you on track. Document your plan to help you stay focused and as each balance is paid, redirect the money you were spending on that card to reduce the balance on another.

Pay more than the minimum. Using the example above, increase your payment to $200 per month and you will pay it off in just 3 years, 9 months and pay $2,479 in interest. Use bonuses from work or other unexpected gifts of money to reduce your credit card balances.

Can’t give up credit cards altogether?

Limit yourself to two or three cards and choose those with the best terms, including low rates, no annual fee, and reasonable interest terms, such as a 25 day grace period before you begin paying interest on a purchase.