Reducing Debt During Stress Awareness Month

April 27, 2009, Written By Bill Hardekopf

April is National Anxiety Month and Stress Awareness Month. According to American Psychological Association’s 2008 Stress in America survey, 84% of women and 78% of men say they are stressed about money. Since our finances are an area that we can control, now is the time to do something about financial stress and to reduce the anxiety by the end of the year.

One of the best places to start reducing financial anxiety is to reduce credit card debt. People are going through tough financial times and are struggling to pay their credit card bills. Credit card defaults are up to almost 10%. According to JP Morgan Chase, 6.16% of cardholders were at least 30 days behind their payments in the first quarter compared with 3.66% a year ago, and 4.97% in the fourth quarter of 2008.

Experts say the anxiety from debt affects relationships, health, sleep and self-esteem. They suggest that the only solution to this anxiety is to reduce the debt, beginning immediately.

Here are 13 steps to handling debt and reducing anxiety:

1. Confront your financial problems. Too many people deny that debt exists. They purposely do not open letters from creditors, thinking that such action will ease the pain. However, denial only leads to more debt. The only way to start climbing out of debt is to admit the problem and start tackling it.

2. If you have debt, realize that it took time to get into debt, and it will probably take you longer to get out of debt. Do not get discouraged, no matter how little you are able to pay off each month or how long it takes you to become debt-free.

3. Get a clear picture of your debt. Simply paying the minimum balance on each bill without knowing exactly how much you owe is easy. To understand your debt, collect all of your bills with outstanding debts, including all credit cards, mortgages, student loans, auto loans, personal loans, and bank loans. Create a summary sheet that lists the creditor, monthly payment, balance, interest rate, and credit limit for each. List the status of each account, whether any bills are past due, and verify the payment due dates.

4. Prioritize the bills to pay first. If money is tight and you have to make choices about what to pay, first pay the bills that are a necessity for health, shelter, basic groceries, and basic transportation. Then pay the secured loans, such as your car loan. Since credit cards are unsecured, pay them after these necessities and secured loans.

5. Contact your creditors to negotiate lower rates. The less money you pay in interest, the more money you have to pay off your bills. Start with your lenders and ask for a lower rate. If that doesn’t work, shop around for a mortgage or credit card with a lower rate.

6. If you are in danger of missing a payment, contact your creditors as soon as you realize you have a problem. They may be able to help you work out a payment plan, lower your rate, or lower your monthly payment. It is better business for them if you keep making your interest payments and avoid bankruptcy and foreclosure.

If the first person you speak with can’t lower your rate or make adjustments to your account, ask to speak with a supervisor or someone who can. You may need to be persistent in finding the person who can or will help you. Politely explain that you are in debt, the steps you are taking to repay your obligations, and what you can pay today. Document all conversations, including whom you spoke with, the date and time, and the results.

7. If you have a high interest rate, transfer your balance to a card with a lower interest rate. If your rate is above 12%, transfer the balance for that card to one that offers 0% for 12 months for balance transfers. Getting 0% for 12 months is a great opportunity to pay down your balance. To take full advantage of this 0% interest, pay as much as you can over the monthly minimum. Experts advise cardholders to be cautious that many credit card issuers have downsized their balance transfers offers, making them less generous than they were two years ago.

Most cards charge a balance transfer fee of 3% and some are now charging 4%. Make sure the amount you save on interest payments offsets this up-front fee. Since the purchase APR may be higher, do not even put the card in your wallet; simply use it to pay off your balance.

8. You must be diligent about making your payments on time. A late payment may immediately increase your rate to the default rate.

9. If you have balances on multiple cards, focus on the debt with the highest rate. Pay it off, and then move on to the debt with the next highest rate. However, if you have a card that is almost at its credit limit, you may want to start with this card. Reducing your debt-to-credit-limit ratio helps your credit score. Get your balance down to 30% of your credit limit, and then focus on other cards that have balances close to their limits.

10. If you have a credit card balance, stop using it for anything other than necessities. Use cash instead. Credit cards are convenient, but if you carry a balance, you are still paying interest for dinners, clothing, entertainment, and things from the past. If you use cash, you will not only save money on interest, but you will also reduce the amount you spend. Studies show that you spend 12% to 18% less when using cash rather than a credit card.

11. Pay more than the minimum amount for your loans, especially credit cards. Many credit card issuers set the minimum payment at approximately 2% of your balance. This reduces the payment but makes paying off the balance almost impossible, so try to add at least $10 to your minimum payment. Look for areas where you can cut back on spending like entertainment, eating out or clothing. Use this money to accelerate your debt payments. Doubling or tripling your payment will help you pay off your debt much faster.


For example, let’s say that you have a credit card balance of $8,000 and your interest rate is 12%. If you pay just the minimum amount of 2% each month (a minimum of $10), it will take 346 months to pay off the balance and will cost $7,697 in interest. If you pay 5% of your balance each month, it will take 113 months to pay off and will cost you $1,974 in interest.

12. If you are surprised by your current rates, check your credit report. Your report may contain an error that is creating a higher credit score and higher interest rates for you. If you find an error on your credit report, contact the credit bureau to report it. The bureau must respond to your claim within 30 days or remove the incorrect or unverifiable information. You can make your dispute by mail, telephone, or online. If the corrected error results in a higher credit score, contact your creditors to make sure they know about your improved score, and ask for a lower interest rate.

13. If you need more than three years to pay down most of your debt and if cutting expenses won’t realistically help you pay off your debt, contact a reputable debt counselor. The National Foundation of Credit Counseling ( is a good place to start.

This entry was posted in Credit Card News and tagged No tags added

The information contained within this article was accurate as of April 27, 2009. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.

About Bill Hardekopf

Bill Hardekopf is the CEO of and covers the credit card industry from all perspectives. Bill has been involved with personal finance for over 15 years. He is a frequent contributor to Forbes, The Street and The Christian Science Monitor.
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