Six Tips to Get Out of Credit Card Debt

Now that the year is coming to an end, it's probably time you looked back on the year and figured out where your money went. Sure, some of it went to paying your mortgage and other household bills, but wait a minute! That credit card bill looks mighty hefty. What's a person to do?

Well, with a little advice and a little effort taken to heart, you can beat that credit card debt and not let it haunt you this time next year.

Tip #1: Stop Digging a Hole for Yourself
Basically, you need to stop using your credit cards. Maybe not altogether, but at least cut your spending down. You can do this by stashing away your credit cards somewhere, like the safe in your basement. That way, it's not as easy to use them for impulse purchases. Stashing them away may help you think twice before buying that trendy sweater or latest gadget.

Tip #2: Develop a Budget
Get a calendar and write down when each payment is due. Keep it somewhere where you'll see it often, such as next to the refrigerator or at your desk. It will help you remember to pay your bills on time (thus helping your credit rating) and will allow you to see where your money needs to go each month, so that you can budget your finances properly.

Tip #3: Keep a Record of Your Bills & Organize Your Finances
Make a list of who your creditors are, how much you owe them and how much interest each one is charging. By knowing who charges the most interest, you'll know who needs to be paid off first. And keep orderly records--this will save you big headaches when it comes time to refinance or do the taxes.

You should also write down smaller things you buy often or regularly, such as cigarettes or that daily cup of coffee from the corner coffee shop. You'll soon realize how much money you're spending on these small items that could either be diverted towards bills or savings.

Tip #4: Pay Off High-Interest Debt First
The national household average credit card balance is around $9,000. And many credit card lenders are requiring larger monthly minimum payments. Find out how much your creditors are charging in interest and pay off the highest one first.

One good way to do this would be to get a home equity loan. By borrowing against the equity in your home, you can pay off your high-interest credit cards. This has great tax benefits since the interest on a home equity loan is usually tax-deductible* whereas the interest on a credit card is not. It's a win-win situation. 

You can also do what's called a "cash-out refinance". What this means is that you're getting a loan for more than what you owe on your original mortgage. Your original mortgage is paid off and you have money left over to spend as you like. For example, if your original mortgage balance is $100,000, you could refinance and get a new loan for $120,000. Your original mortgage is paid off and you have $20,000 in cash left over. This is another great way to pay off high-interest credit card bills.

Tip #5: Make Sure You're in the Right Mortgage for Your Situation
While short-term rates have gone up, long-term rates are still near historic lows. If you have an adjustable rate mortgage, you'll want to consider refinancing out of your ARM into a fixed rate loan to help ensure your payment stays low…and give you extra room in your budget.

Keep in mind that by law, lenders don't have to drop Private Mortgage Insurance (PMI) on your mortgage until your equity reaches 22 percent, but you can drop it yourself if you have at least 20 percent.

Tip #6: Contribute the Maximum Amount to Your Retirement Plan
Take full advantage of your retirement plan. If your employer matches contributions, every dollar of that match is free money. If you get an interest-only mortgage, you could be applying the monthly savings on your mortgage to a 401k plan. It's a great way to get the most out of your money.

However, getting an interest-only loan isn't for everyone. Talk to a mortgage banker--ask lots of questions to find out if getting an interest-only loan is right for your situation.

Bonus Tip: Maintain a Good Credit Rating
As always, check your credit report for any inaccuracies or discrepancies. Clearing up any errors can only help you. Checking your report regularly may help you find ways to improve your credit score and can lead to getting better rates from lenders.

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