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Ask the Expert: Credit Card Debt

SALT LAKE CIT, Utah (ABC 4 Utah)- Greg Jensen with OptionsAnimal talks about managing credit card debt.
SALT LAKE CIT, Utah (ABC 4 Utah)- Greg Jensen with OptionsAnimal talks about managing credit card debt.

Question: I have 55,000.00 unsecured credit card debt. I have received offers in the mail for a debt settlement program offering 40-60% of relief. Are these companies reliable? Can I count on them to help me. I want to be able to retire. I am paying 14% to 28% interest. I have never been late with a payment but my credit report is suffering because of the credit-to-debt ratio. Please help. I do not know if I can get a loan to pay them off because of my credit rating.

This is an ever increasing problem, regardless of age, so your are not unique to this challenge. Part of this is problem stems from the economic slowdown that has impacted all of us, and part of the problem is simply living beyond our means. The encouraging part of this is that regardless of how you individually got in the situation, there is a way out.

First answer, don't rely on a debt settlement program to do the work for you. Most of those companies are not reliable and will hurt your credit rather than help your credit. Even those that do help can be very expensive and ultimately do work that you can do yourself. This stems from the fact that at the core of the solution to this problem is a significant lifestyle change that will be required by you to work your way out of.

Hers's an outline of a step by step process to help conquer this mountain.

Step 1. - Make a budget. Involve your spouse if you have one. It won't do any good if you are determined to make a change to get out of debt, and they aren't there with you. Make sure the budget includes EVERYTHING. You are only cheating yourself here, so be real. Now, that you have a budget, cut some fat. It doesn't have to be drastic, but the deeper you can cut, the quicker you can get out of this hole. In order to make this work, you have to commit to not ADDING any more debt to the credit card lines.

Credit card line item may look like this:

Bank ABC - $10,000 - 12.99% APR - Min payments - $150
Western Bank - $5,000 - 18.99% APR - Min payments - $100
City Bank - $8,000 - 21.99% APR - Min payments $100
Bank of the USA - $18,000 - 14.99% APR - Min payments $200
Dept Store X - $5,000 - 22.99% APR - Min payments - $150
Home Store D - $9,000 - 24.99% APR - Min payments - $250

Total Debt - $55,000 - Min monthly payment totals - $950

Step 2. Make minimum payments every month and with your "surplus" in your budget, attack the highest APR first. Dump everything you can on it. Let's say you are able to find $500 extra per month in your budget, because you decided to sell your car and go down to a one car family. Use the extra $500 per month and make a $750 payment to Home Store D. It may take you a little more than a year, but you have now eliminated the first step. Now you roll the entire $750 you were paying to Home Store D, and attack Dept Store X. The payment in now $900. After 6-8, months, you have paid off that card. Now attack with $900 additional City Bank.

Step 3. After you are out of credit card debt, now you can start to think about investing and retirement. I know this is not a popular approach, as many individuals want that "lottery ticket" that they feel that the stock market can give you, but the most important step first is to get your fiscal house in order. Once you are to this step, we can start talking stocks, futures, bonds, and options.

Every Tuesday on ABC 4 Utah News at 4 p.m., either Greg Jensen, CEO and Founder of OptionsANIMAL, an investor education firm or Travis McGhee, CEO of FuturesANIMAL, a registered brokerage firm will be available to offer financial planning and investing advice.

Submit your investment questions to Greg or Travis at the Ask the Expert page on our website.
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