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Start the New Year by tackling your credit card debt

New year is traditionally a time for setting new life goals, and mostly it concerns losing weight, quitting smoking, and the like. Although wanting to improve your physical health is a very commendable objective, while you’re at it you might also want to take a look at your financial health. One of the greatest threats to your economic wellbeing is credit card debt. This type of debt can certainly be a silent killer, since many cardholders see a credit card as a sort of 'horn of plenty' that will never be depleted, not realizing that if they are careless, it can turn instead into a source of constant financial anguish.

How it all starts

Credit card debt starts when a person is said to be in ‘default.’ In lay terms, being in default means being late on credit card payments. This is actually a twofold problem; not only do you owe the money that you have spent using your credit card, but the card-issuing company will add to that interest and penalties. Thus, the later you are on your payments, the more your debt will go into a snowball effect.

Preventing credit card debt

Since prevention is, as they say, the best medicine, here’s a little word to the wise in that regard: You need to be well-informed when using a credit card, both when it comes to benefits and disadvantages. We all know how convenient this form of payment is, but how many people are aware that introductory rates have a limit of 6 and 12 months, and that after that period the rate increases? Add to this fees and interest, and it is easy to see why some people have been driven to bankruptcy by credit card debt. Another thing to take into account is that card-issuing banks offer a grace period to pay your balance, a period that can last from 20 to 55 days. Whether or not this is enough time is debatable; regardless of that you should know how long you have before interest is heaped onto your debt.

How to relieve credit card debt?

If you live in the United States, you have several options for relieving your debt before filing for bankruptcy, which we can all agree would be the worst-case scenario. These options include:

  • Debt Settlement: This basically involves a negotiation with the creditor. However, the debtor needs to come up with a sufficient amount of cash, or lump sum payment, to get the credit card company to negotiate with them.
  • Debt Consolidation: This comes down to borrowing money to pay back the money you already owed before. This may justifiably seem like trying to put out a fire by throwing gasoline into it, but sometimes desperate measures are required, especially when a problem needs to be solved immediately, while another one can still wait.
  • Credit Counseling: This is probably the most sensible way to go, and it includes establishing a Debt Management Plan (DMP) with the help of a credit-counseling agency. In fact, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made credit counseling a requisite for consumer debtors filing for Bankruptcy in the US. A DMB entails a debtor-creditor agreement, and is custom-made to fit individual circumstances.

This article is provided courtesy of Sam Burgoon, marketing and social media executive for Credit Season, a personal finance website that strives to help people improve their money management skills and overall finances, while delivering the latest and most relevant news from the financial world. Follow Credit Season on Twitter and connect on Google+ and Facebook.

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Jason Bushey's picture

Jason Bushey is the former Editor and Vice President of Creditnet. Jason is a Burlington, Vermont native who moved to sunny San Diego after earning a Bachelor's Degree in English and Political Science at the University of Vermont ('09). When he's not sharing his take on credit cards, administrating the Creditnet Forum or blogging about all things related to credit, you can probably find him cheering on the Green Bay Packers (He's an owner!) or running up and down the streets of SoCal.

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