Tips for paying off credit card debt.
There are a number of tips and things you can do to help pay off credit card debt. Some of the tips include free balance transfers, consolidation, credit counseling, hardship plans, refis and others. All of these steps will help borrowers with paying off, or greatly reducing, the amount of debt they have or their monthly payment. Find a list of tips for paying off credit card debt.
The average family has thousands of dollars in credit card debt as well as other financial obligations, such as a mortgage, car loans, student loans, medical bills and more. They often pay a large amount of money towards their interest costs every month in order to service the principal on their credit cards or other loans. People are having difficulty catching up, not to mention actually getting ahead. There are a number of free, quick tips and steps to take to become free of credit card debt as well as free Consumer Credit Counseling Services.
Tip #1 - Understand the amount of debt you have
First, you need to know exactly how much credit card debt you have and what are paying. People are often paying hundreds if not thousands of dollars per year in interest on their credit cards, car loans and medical bills. The interest rate on credit card debt is incredibly high, and depending on the lender and the borrowers credit score, those rates can be as high as 15 - 25%.
Take a few minutes to find out what interest rate is now being paid on any credit card debt, how much you pay for month, and take a view of your overall finances. While easier said than done, paying off credit card debts (and other bills once the cards are paid off) needs to be a household’s highest priority.
Tip #2 - Transfer your current balances to a lower cost card
If your credit scores and rating are in “decent shape”, explore transferring your high-interest rate balances to a lower rate credit card account. This will allow you to pay off your credit card debt in less time. While there may be an upfront cost, if the new interest rate (APR) is low enough it can offset that transfer fee. There are some banks and lenders that offer deals, and find the best credit cards.
- It is important to note that most credit card companies and banks offer a very low interest “introductory” rate for three or six months or maybe a year. Some offer zero interest rate deals as a come-on to get your business with them. You need to keep your eyes on these deals.
- If you unpaid debt on several higher interest rate credit cards then a very effective way how to regain control is to find a credit card that has a zero-percent-interest transfer offer and that also has no balance transfer fees. Once you transfer the balance from your higher interest rate credit cards to the zero interest rate card, don’t use the new zero percent interest rate card again.
- The reason that you want to cease the use of it is because under current practices the credit card issuers will apply your monthly payments to the zero-percent balance and not your new purchases, which will be at the higher interest rate. If you continue to use the card then this will not occur.
This transfer tip is effective for paying off credit card (or any debt) as if you have a credit card with a low interest rate (or even 0%), more of your monthly payment will go towards paying down the principal balance. Your hard earned income will not just go towards paying interest expenses.
Tip #3 - Continue to transfer balances to other credit cards with low cost deals
To continue to pay down your credit card debt, you need to act right before or soon after the low interest rate grace period (per tip 2 above) on the new card expires. Beware that the interest rate that the borrower will pay will increase to the normal amount for their situation, and the rate could therefore double or triple if not even more. Now before this occurs the next step and really the key to making this strategy work is that the customer must be willing to, and also able to, move their outstanding balances to another new low introductory rate card when the special rate expires on the first credit card.
So what you basically need to do is to keep transferring your balance from one low rate credit card to another. If the borrower were not to do this, and doesn’t move their unpaid balance to a lower interest rate, then they will save no money on the amount of interest you need to pay every month. In fact they will lose money from the higher rates and transfer costs. Read more on how to use 0% balance transfer credit cards.
The last key part of the tip to follow in order to pay off credit debts, is discipline. In other words the customer must take the money saved by the temporary lower interest rates and low payment associated with them and pay down the principal on all of their credit cards. So live within means and do not overspend. Just keep repeating this process of transferring a balance and paying it down until the credit card debt is paid off in full.
Tip #4 - Use a debt management plan to pay off credit card debts
Many credit card issuers, including Synchrony Bank and Wells Fargo among others, are providing low-income families relief from debt management plans (DMP). A debt management plan can reduce the household’s interest rate, extend their payment terms, or even lower their principal. The program can be tailored to a certain situation.
- Some banks or credit card companies offer DMP directly to their customers, but not all do. In those cases, explore non-profit credit counseling agencies. They can help borrowers find a DMP and enroll into one. Read more on assistance from debt management plans.
Tip #5 - Consolidate credit card and other debts
Save big on your credit card interest costs by consolidating their various accounts, which is often a free process. Debt consolidation is when the borrower will gather all of their smaller accounts that are considered high-interest rate and consolidate it or put it into one big pile. The key to make this tip work is that the new APR rate needs to be competitive and lower that what is currently being paid.
- Find a comprehensive list of programs, including debt consolidation from Chase, Cite, BOA, Wells Fargo and other banks that offer help paying credit cards.
Once you understand all your accounts and interest rates, the borrower can take out one large personal loan to pay down the balance on the credit card(s). The major benefit to consolidation is that the new source of funds that is taken out will almost always have a lower interest rate that any of the smaller, individual debts. In fact this needs to be true in order for it to work. Read more on types of debt and bill consolidation.
The lower interest rate on the new loan will make for a lower monthly payment. So it in effects saves money on future monthly credit card bills. As a result of this lower payment, the debt holder can make additional monthly payments on the principal balance.
- Since there will be more money paid to the principal balance, it will allow the customer to pay off the outstanding credit card debt sooner. But this tips also requires discipline in that the extra funds need to be applied to the principal and not some other household expense.
Tip #6 - Select the best credit card
Always be sure to select the best credit card for the type of borrower you are. Review the rewards cards and see how they work. Learn about any fees, penalties, annual costs, and of course the APR rate. Select the card with the lowest fees and/or best interest rate. Never be afraid to call the credit card company and ask for help in trying to understand their terms.
The terms and conditions vary greatly by lender. Following this tip, and taking these steps, will help ensure you keep your credit card debt manageable and also help you pay it off as efficiently as possible over time.
Tip #7 - Keep up with changes made by banks and lenders
In order to pay off credit card debt as soon as possible, stay aware of any changes to your account. While a letter might look like advertising, a letter from your credit card company might be a notice of an increase in your rates, new fees starting, or a reduction in your credit limit. So as simple as this step sounds, you need to be sure to be diligent, continue to review the terms of your card, and stay up on any notices and mailings from your bank or lender.
Issuers usually provide an opt-out clause in this letter, which allows you to stop using the credit card and pay off the existing balance under the old payment terms. So if the lender is going to say increase your rate or implement new fees you want to explore opting out or closing the account.
You have the right to decline any changes to your original credit card agreement, but your lender doesn’t have to allow you to continue to use the card with the old interest rate. The bank can decide to take other steps, such as closing the account, to prevent the use of the card under the old arrangement terms.
Remember, if the change is unfair or unreasonable, it is better to decline it. Otherwise you may face a higher monthly payment in the future. It is better to be pro-active when addressing changes to the terms of your credit card agreement.
Tip #8 - Contact your lender for help in paying off your credit card balance
Be sure to ask for help with credit card payments and negotiate any outstanding debt if need be. Usually the best way to get the most attention is you may need to go above customer service and talk to a customer-retention person or a manager at your bank (or credit card company) for help. You just need to ask for the. Learn more on negotiating credit card debt.
If the customer service representative tries to discourage this, you can gently “push back” on them. Also, another part of this tip is that you may want to strongly consider sending them a hardship letter. They have been proven to be effective. Find examples of credit card hardship letters.
Tip # 9 - Be aware of “tricks and traps”
By on the look out for all the tricks that lenders may pull. These include the practice of increasing credit card rates for existing balances, counting payments as late payments if they arrive on a weekend or holiday, or maybe applying your monthly payments to the lowest interest rate debt and charges first (such as balance transfers).
You need to read the fine print as mentioned above. Keep up with any communication from your credit card company. if they pull some type of “trick”, be sure to call the lender and ask for how to remove the fees, lower the increased rates, and ask for help. Do not accept these tricks that many credit card issuers try.
Tip #10 - Learn about credit card debt forgiveness or refis
Many banks and lenders are beginning to be more open and more willing to forgive or refinance credit card debt to help borrowers pay it off. Or they are able to help consumers in other ways, such as refinance. There are other different types of solutions that often “come and go”.
Also be up to date on your account and the banks terminology, and this is always a great tip that is so important. Communication is one of the key to make this work. Learn more best way to refinance credit card, debt.
Tip #11 - Pay more principal on your debts every month
To help accelerate the time it takes you to eliminate your credit card debts, you need, pay a little more money every month. For example, if the customer were to make just the minimum monthly payment on their bills it takes much longer.
- Say they have $10,000 in total outstanding debt and are paying a 21% interest rate. Using this example it would take about 16 years and 10 months to pay that credit card debt off at $180 per month.
- However if the borrower were to increase their monthly credit card payment amount by just $40 per month, to only $220, they could have that same debt paid off in 7 years and 8 months. That is less that half the time if you add just $40 per month to a payment.
It doesn’t sound too unrealistic. In addition, the borrower would save thousands of dollars in interest costs over the years. Saving $40 per month to do this is not that difficult for most families. Skip buying the coffee from Starbucks or somewhere else, brown bag lunch to work a couple times per week, give up smoking, eat out less. Do whatever it takes to pay extra on the credit card debt each month as the impact is huge, and this basic tip may be the most effective.
Tip #12 - Explore payday loan laws that cover high priced credit card rates
If you have used a predatory lender, then this tip involves them. Most state government have implemented laws and regulations to help people get out of debt, in particular around payday loans or subprime credit card companies. More regulations are protecting consumers, including those filing bankruptcy on credit card debts which is also a solution. Learn how to get help with bankruptcy.
Many of these state laws also apply to credit card accounts. More people have turned to these salary advance loans in difficult times. Click here to learn about the payday lending laws for your state.
Tip #13 - Take advantage of federal government help with paying credit card debt
The federal government continues to put more focus and regulations on protecting consumers. They have worked with banks, financial institutions, and other lenders to find solutions. This has added additional pressure on credit card issuers to settle outstanding debt with consumers.
In fact, most lenders do not want to have bad public relations when many of the banks themselves received support from the government in the recent past. You may be able to take advantage of this to help your personal situation. Read more about government help for debts.
Tip #14 - Cash out of some or all of your savings account.
While there are pros and cons to this step, you can cash out a savings account and use some or all the money towards credit card debt repayment. This can really help you get out of debt much faster, with lower monthly bills. It can be an option if you are very confident of your employment status and also have backup plans.
Even when you credit card interest rate is at 12% (which is low), your savings would need to pay more than 18% (before federal and state taxes) to equal that outflow of dollars. Since most savings accounts pay roughly 1-3% (or lower!), you lose money every month on your savings. So it is fine to reallocate that money in an effort to eliminate higher cost credit card debts. Take the savings, use it to help pay off the credit card debt, and it is like getting that 18% return at no risk. Put some numbers around this suggestion.
- Say your credit card debt is $10,000, and the interest rate is 15%, you are paying $1,500 in interest every year.
- If you have a savings account of $2,000, and the interest rate is 2%, your savings are paying you $40 in interest.
So if you take that entire $2000 savings, use it to help pay off your credit card debt, and bring that down to $8,000, your interest payment now on that $8,000 debt is now only $1,200 per year. This monthly savings can be used towards eliminating any other expenses the customer has. So you “earn”, or “save” $300 per year in lower interest payments by using those savings towards your credit card debt rather than earning the $40 per year from a low interest rate savings account.
Conclusion
At the end of the day, it is important to eliminate debt and the money that is being spent each and every month on paying the interest for those financial obligations. Reducing those monthly payments can free up the household’s money for paying other types of bills that the family may have in their life. So there are numerous benefits to taking action. Follow these fairly simple tips and take this advice that may help borrowers become debt free.
These tips above are only several of the numerous ways that can help speed up the process of debt reduction. There are many other things that families can do, and most actions will not cost them a thing. Never give up the goal, and dream, of becoming debt free.
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