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To end credit card debet, quit charging, pay more

Updated: May 3, 2013 12:14PM



Originally published: September 19, 2002

Are you in debt? You’re not alone. A new report from the Federal Reserve shows that the nation’s total debt--including personal, business and government debt--grew at twice the rate in the second quarter this year as it did in the first quarter.

Our combined debt now totals nearly $19.99 trillion.

The numbers are staggering. Americans now have nearly $700 billion in credit card debt rolling from month to month. And about half of that amount is being reduced by only the required minimum monthly payments. At that rate, it would take 30 years to pay off--and interest payments could total nearly four times the amount originally charged.

Don’t panic. Here’s my two step method for getting out of debt.

* Step One: Every month pay double the minimum monthly payment on your credit card.

* Step Two: Don’t charge another penny.

If you can manage these two steps, your card will be paid off in about three years, instead of 30 years!

You’ll need income and discipline

There are two requirements for following this plan: self-discipline and more income.

It’s a Savage Truth about human nature: The more we earn, the more we spend. But the corollary is: If you don’t see it, you won’t spend it.

So here are the two steps required to find both the money and the self-discipline to implement this debt paydown plan.

First, ask your employer to have your paycheck deposited directly into your checking account. Then instruct your bank to make an automatic monthly payment to the card issuer on a specific date every month that is double the minimum payment on your current bill. The money will automatically be taken out of your checking account before you see it and spend it. Most banks will make this arrangement, and it’s easiest if you’re paying your bills online.

Then take the credit card out of your wallet and put it away. Before you know it, you’ll be out of debt.

Sometimes people find themselves in debt because of circumstances beyond their control--divorce, uninsured medical bills, a lost job. And sometimes the problem is psychological--spending beyond their control, much as an alcoholic or gambler has an overwhelming need to pursue an addiction.

In those cases, you probably need outside help. You need Consumer Credit Counseling Services. Call (800) 388-2227, which will automatically connect you to the nearest local office. They offer free or very low-cost private counseling sessions with a professional. It’s not just for people buried in debt. Many people take advantage of their help when trying to figure out whether they can afford a home. If you’re not already way behind on your bills, just go for the counseling--which is not reflected on your credit report.

Debt repayment begins now

But the other valuable service this organization provides is a debt repayment plan. They contact your creditors, who may lower your interest rate or waive penalties once you’re in the plan. Then you send one monthly check to CCCS, and CCCS pays your bills. Nationwide, CCCS distributes hundreds of millions of dollars to creditors every year and gets paid a fee by the creditors for doing so. Creditors benefit by not having to write off the debt. It does impact the consumer’s credit report, but it’s far better than a bankruptcy.

There is one other national credit counseling agency worth a closer look. Cambridge Credit Counseling Corp., (800) 897-2200, a non-profit agency, gives a free phone counseling session, and will set you up in a repayment program. Its fee is equivalent to one of your new consolidated monthly payments, but as you go through the plan, the agency gives back to you half of the money rebated to them by the merchants. This program has been in effect since 1996, and during that time CCCC has rebated more than $4 million to clients.

In any case, get started on debt repayment now, while you have cash flowing through your hands, instead of waiting until you’re unemployed. Burying your head in the sand will only bury you further in debt. And that’s The Savage Truth.

Terry Savage is a registered investment adviser and is on the board of directors of McDonald’s Corp. and Pennzoil-Quaker State Co. Send questions via e-mail to savage@suntimes.com. She appears weekly on WMAQ-Channel 5’s 4:30 p.m. newscast.



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