To pay or not to pay?

Every project is an alternative of wishes and possibilities. We are faced with a similar situation when it comes to paying off a credit card debt. In order to avoid common errors when paying off your credit card debt, please answer the following questions:

  1. One of the important budget functions is planning the timing for the debt pay off.

Do you have a plan to pay off your credit card debt by a specified date? (YES/NO)

  1. In order to maintain a high credit score, credit card debt should be paid off no later than 10 or 11 months following the date of credit. Credit bureaus should be able to see zero balance on your credit card at least once a year within the annual cycle.

Do you follow this rule? (YES/NO)

  1. If it takes you longer than a year to pay off your credit card debt, use the credit limit of a different card for this purpose. Such approach allows you years to pay off your debt while, at the same time, staying within the limits of the ‘first year’ with all its benefits – 0% interest rate, minimum payment, and so on.

Did you plan to use this method from the very start? (YES/NO)

  1. If you answered affirmatively to the above questions, you have nothing to worry about because your credit score will not be affected and you will be able to keep opening new credit cards.

But sooner or later, you will have to pay off your credit card debt in full. In this case, you will have to choose between ‘want’ and ‘can’. In order not to lose control over your pay offs, and not to miss the so-called point of no return, you should do the following on a monthly basis:

  • analyze the full volume of your debt;
  • follow the dynamics of increasing or decreasing of your debt amount;
  • coordinate your total monthly payment with the budget and the terms of credit pay off.
  1. Rule of 18.

To make an objective evaluation of your possibilities, use the ‘mnemonic’ Rule of 18 which states the following: if your budget guarantees the credit pay off within 18 months, you ARE CAPABLE of paying off your debt. In case there is no such guarantee, you WON’T BE ABLE to pay off your debt even theoretically because of the aggressively increasing interest rate. Even if you closely follow your payment schedule, your total debt amount will keep increasing.

In this situation, you have to come up with the alternative way of your debt pay off or its cancellation.

The following options are available to you:

  • debt consolidation – combining a few accounts into one or two. This may help decrease monthly payments but will take a lot of time and money;
  • debt settlement – a procedure of negotiating with your creditors with the purpose of decreasing the total debt amount. The downside is the same as in the first scenario – long and costly;
  • bankruptcy (Chapter 7) allows you to eliminate all your debts – fast and cheap.

Whichever option you choose, remember that it will not affect your credit recovery.

Contact me if you need a quick solution of this problem. Consulting a professional is never too early; it is unfortunately often too late.

joseph RozenbergPlease call me for more information: 847-520-7030.