When you have $5,000 in credit card debt and are struggling to find a way out of debt, those late night TV commercials promising to reduce your monthly payments by up to 50% will seem like the way out.
Those commericals are for several ways out of debt – debt consolidation, debt settlement, home equity loans and even bankruptcy.
Let’s take a moment to examine each of these choices and their viability to reduce your credit card debt.
With $5,000 in debt, your monthly payment is $100 a month if your minimum payment is 2%. It might be as high as $200 a month depending on how your credit card company calculates your repayment schedule.
The fees for each debt elimination method are anywhere from $25-$100 a month and up.
You can go with debt consolidation and your monthly payments may go down. The main reason for this is that your loan term will be extended so of course your payment will go down. In the long run you will end up paying more in interest charges after you pay off all your debt.
A home equity loan would be one way to eliminate your debt, but the biggest risk is if you default on your loan payments, you could now lose your house whereas if you defaulted on your credit card payments, you wouldn’t lose anything. The home equity loan would have to have a very low interest rate and low fees for it to even be a debt elimination consideration.
Bankruptcy should be avoided for $5,000 in credit card debt. Depending on where you live, just the cost of filing bankruptcy can run anywhere from $500-$2000. Why would you want to ruin your credit for 10 years by filing bankruptcy to wipe out $5,000 in debt? It is not worth it.
Your next option is debt settlement. While debt settlement companies usually do not work with clients who have under $10,000 in debt, you may be able to settle your debts yourself. You would call and negotiate with your creditors and see if you can reach a settlement that is fair to both parties. Draw them up a financial statement and show them your financial picture. Show them how a settlement will help you get out of debt while also allowing them to collect some of the money owed them. The alternative for them is not getting anything if you are forced to file bankruptcy. Because you have a smaller debt amount, a credit card company may be more willing to settle instead of filing a lawsuit to collect.
One other option is to transfer your balances to a low interest rate credit card. Ideally you would want a long term offer and low balance transfer fee. There are several free calculators out there to show you the best deals on balance transfer offers.
One last thing to help you reduce your credit card debt would be to make more money. You could start freelance blogging on several free blogging sites and generate some Google Adsense revenue to help you get extra money to add on to your minimum payments. You could also sell your used, unwanted items on Craigslist or eBay. Check out Warriorforum.com for tons of free ways to make more money online.
Having $5,000 in credit card debt, living paycheck to paycheck, and struggling to keep up with your minimum monthly payments may have you pulling your hair out and causing you to lose sleep at night along with missing out on going out with your friends. But there is help out there. You are not alone. Millions of people struggle with credit card debt.
-Adam