6 Steps To Credit Card Serenity

By Walecia Konrad

Source: www.Bankrate.com

We've become a nation dependent on plastic. Rent a car, buy a gift online, make airline reservations.

We think nothing of pulling out our credit card for these and hundreds of other transactions every year. That's not necessarily a bad thing. Credit cards can be a convenient and safe alternative to cash. But too often, before you know it, credit card purchases spiral out of control (to the tune of more than $8 trillion a year) with a simple swipe of the card.
Then, with high rates, fees, penalties, continued spending and the other pitfalls that can happen with credit cards, debt accumulates much faster than your ability to pay it down.
But that all too common and sad scenario doesn't have to happen to you. Whether you're carrying a balance of a couple hundred dollars or several thousand, take the following steps to get out of debt -- fast.

Know where you stand
When you're feeling overwhelmed by debt it's easy to let the bills pile up, unopened like so much junk mail. But, you can't control your credit cards if you don't have a handle on how much you owe, says Bill Driscoll, a financial planner in Plymouth, Mass. Sit down at the computer screen (or with pencil and paper) and make a list of exactly how much you owe and what rate of interest you're paying on each card. Then list your cards in order of highest rate to lowest.

Pay your highest rate cards first
These cards are the ones that are costing you the most over the long run so you need to make every effort to pay more than the minimum payment each month on these bills first. Find out the fastest and cheapest strategy to use to pay down your card balances.

Get a better deal
Call the toll-free number for your highest rate cards and ask the customer service representative if she can give you a better deal. Let her know that you've been getting offers in the mail for much lower rates and you've been tempted. At most credit card companies, reps are authorized to lower your rate rather than lose you as a customer, says Robert Manning, director of the Center for Consumer Financial Services at Rochester Institute of Technology. You'll be surprised how easily this works.

If you succeed, you'll soon notice your minimum payment is lower. Don't breathe easy yet, says Jean Chatzky, author of "Pay It Down, From Debt to Wealth on $10 a Day." Instead, continue paying the old amount and you'll see your balance shrink faster without any additional squeeze on your budget.

Consider using a different card
Hang on to all those zero percent and other low-interest credit card offers you've been getting in the mail. Done well, transferring your high interest balance to one of these cards can save you an enormous amount in interest and put you on a solid track to paying down debt. But these cards are filled with caveats that can end up costing you more in interest than you expected and sometimes more than if you had stayed put. Check the time limit for the low rate; where the low rate applies (balance or new purchases?) and the fee for transferring balances.

Beef up your credit score
If you're having trouble getting a no- or low-interest card, it's mostly likely because your credit score is too low. This number represents how responsible you are when it comes to handling debt. So if you have a history of late payments or are already maxed out on several cards, your credit score will suffer. To find out what your score is, use a FICO calculator to get a rough idea. It's free. Or, you can purchase your credit score from any of the credit reporting agencies or FICO. If it's below 660, you'll need to spend the next six months or so trying to improve that so you can qualify for a cheaper card. If you make all your payments on time over the next six months and aggressively pay down your biggest balances first, you could improve your score as much as 50 points, says Chatzky.

Avoid penalties and fees.
Interest rate hikes and hefty monthly fees can ruin even the best-laid pay-back plans.

• Late payment penalties. It's not unusual for your interest rate to jump to 25 percent or even 30 percent if you make a late payment. If you have trouble keeping track of your due dates, consider setting up an automatic payment from your checking account each month.
• Penalties for late payments on any card. Even if you pay on time, some credit card companies will hike your rate if they see you've made a late payment on another card. This practice, called universal default, is waning somewhat, thanks to pressure from consumer advocates, but it can still happen.
• Credit limit fees. If you go over your credit limit it's not unusual to get hit with a $40 fee. Do it a few months in a row, add the interest payment and you're talking real money.