Get Out Of Credit Card Debt

If you charged too much this holiday season, listen up; Stephanie AuWerter, Editor of SmartMoney.com, has some tips for putting down the plastic and getting out of debt.

First, assess the damage. "Over the holidays, the average shopper puts $1,600 onto their credit card," says AuWerter. In addition 60% of all credit card holders carry a balance all year long. Add in interest, and you may be looking at years of payments before you even pay off this year's holiday purchases. This is a problem; many people are becoming increasingly worried about the nation's economy and the possibility of a recession. "A big warning sign is when you're worried that your family and friends will find out just how far in debt you really are," says AuWerter.

Once you realize how much you actually owe, you have to come up with a plan to tackle all that debt. "Part of the problem with being in debt is that you get into this really vicious cycle," says AuWerter. "You'll make a big payment on your credit card because you're trying to pay off those bills as quickly as possible, but then you have no money to live on for the rest of the month so you start using those credit cards again."

The answer? Make a budget and stick to it. If you feel like going the high-tech route, get some software like Quicken or Microsoft Money, and come up with a game plan. If you're not exactly computer savvy, a pencil and paper work just fine too.

Also, avoid doing the "debt shuffle". "It can be so tempting to take that high interest credit card debt and roll it into another loan like a 401k loan or a home equity loan," says AuWerter. While these types of loans offer lower interest rates, it's possible you'll run up your credit cards again once you have a zero balance. Unless your credit card debt came about because of a one-time circumstance - like a divorce or an illness - you're better off paying your credit card bill as is.

You can also try to lower your interest rates by simply calling your lender and asking for a lower rate. Most companies will lower your rate if you have a good history with the company. If you can't get your company to lower your interest rate, take a look at lower interest card offers that you're probably receiving in the mail. Once you find one with a reasonable rate, transfer your current balance to that card.

Finally, hide your credit cards! Take them out of your wallet or lock them in a drawer somewhere. Or, literally "freeze" your accounts; put your cards in a bag of water and place them in the freezer. By the time you can thaw out your cards to use them again, you may not want those new shoes as badly anymore.

For more information in getting out of debt, as well as more personal financial advice, click here to visit SmartMoney.com.
By Erin Petrun