Credit Card Debt Management

Who needs credit counseling? The need for these services can be a tough thing to admit, but it is not synonymous with financial failure. In fact, those who seek credit counseling services are actually demonstrating great strength. It takes strength to face the situation, it takes resolve to change it, and accepting help is a sign of maturity.

There are, however, many debt counseling services that are not reputable. In the coming days, we will discuss the pros and cons of the $7 billion industry, as well as red flags that indicate a debt counseling service might be a scam.

Legitimate credit counseling services do serve a real purpose. They can help out consumers who fall behind on their payments due to a job loss. Other reasons consumers might consider full-scale credit counseling include escalating debt due to medical problems or irresponsible spending. The minimum payments may have escalated out of control or your payments on debt or other bills may have been late repeatedly. Calls from creditors may be haunting you day and night, and your efforts to resolve the situation may have failed. Credit counseling may be able to help your situation, but according to MSN Money’s Liz Pulliam Weston, bankruptcy is sometimes the better option.

“Be warned: If you’re too far in debt, credit counseling may not be able to help. There are limits to how little your creditors will accept, and a credit counseling service may not be able to cut your payments enough to either give you breathing room or get you out of debt. If that’s true, bankruptcy may be the best of bad options.”

It’s a new year and maybe you’ve made a resolution to clean up that outstanding credit card debt.  

The best way to do so? Pay down the principal amount of the credit card debt, which is the actual amount on the card, not including interest charges. This lowers the amount on which you can be charged interest.

The secret is, even if you are paying more than the minimum payment each month, you usually need to tell the credit card company where you want the extra money to go. You might ask where the extra money is going, if not toward principal? The card issuer will often file part or all of the extra money in the interest category. The same goes for things like auto and home loans.

Another great tip is to include a note with your mailed payment indicating that the extra amount should be applied toward the principal balance of the loan. Online banking usually makes this a very feasible option as well, with clearly marked buttons to indicate whether your payment is for the minimum balance or the principal. Without this extra step, all your efforts to pay more toward debt could amount to nothing.

It is very important to pay more than the principal amount on your credit card, but even more important to make sure you are doing it correctly.