Best tips to become debt free on your credit card account(s).
The average family has thousands of dollars in credit card debt as well as other financial obligations, such as a mortgage, car loans, rent payments, and more. They often pay a large amount of money towards their interest costs every month in order to service the debt on their credit cards or other loans. Add in outstanding medical bills, home loans and/or their monthly rent expense and it is no wonder why many families are truly struggling. People are having difficulty catching up, not to mention actually getting ahead. Find eleven of the best tips below for how to become debt free.
Taking these steps will help improve your household’s finances. If people paid off their debts, the savings on their interest payments would flow to their bottom line. The exact amount of money saved per household will vary, but some families would save hundreds or thousands of dollars over a few years. Remember, it is not just credit card debt that causes people to struggle. There are many other financial commitments as well.
Many households have department store revolving credit cards, auto or student loans and other non-secured debt such as personal or payday loans. These only add to the amount of bills that people need to pay every month. Too many individuals are just one minor illness, temporary job loss, reduction in work hours, or a variety of small steps away from declaring bankruptcy.
First, you need to know exactly what you are paying. People are often paying hundreds if not thousands of dollars per year in interest on their credit cards and medical bills. This can in effect be thought of as wasted money. 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 20%. Or they could even be higher if the individuals has a poor credit rating. Take a few minutes to find out what interest rate is now being paid on any credit card bills and more than likely the borrower will be shocked.
While easier said than done, paying off credit card debts (and medical expenses once the cards are paid off) needs to be a household’s highest priority. The easiest way to do this is to live beneath their means. Another option is to try every avenue to increase the household income. Find some of the top tips mentioned below. Using them properly can go a long way to help people become debt free.
Transfer your balances to a lower cost card
Tip #1 - If your credit scores and rating are in “decent shape”, explore transferring your high-interest rate balances to a lower rate credit card account. While there may be an upfront cost, if the new rate is low enough it can offset that transfer fee. Find the best credit cards to try this with.
It is important to note that most credit card companies and banks offer a very low interest “introductory” rate for three or six months. Some offer zero interest rate deals as a come-on to get your business with them. People can keep their eyes on these deals.
If you already have 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. And while you do carry a balance, it helps to keep the balance on any credit card below 30 percent of your total limit or you might hurt your credit score.
The next step to take as part of tip #1 is to act right before or soon after the low interest rate grace period 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 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 step, and a key part of the tip to follow in order to pay off 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.
Use a debt management plan
Tip #2 - Many credit card issuers, including GE Money and Wells Fargo among others, are providing families relief from debt management plans (DMP). This is our second suggested tip. 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. Read more on assistance from debt management plans.
Consolidate credit card and other debts
Tip #3 -Anyone can become debt free and save big on 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 that is done, the borrower can take out one large personal loan to pay it down. 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. More on 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 bills. As a result of this lower payment, the debt holder can make additional monthly payments on the principal balance. All of this extra money can go towards outstanding accounts.
Since there will be more money paid to the principal balance, it will allow the customer to pay off the outstanding medical or credit card debt sooner. But this also requires discipline in that the extra funds need to be applied to the principal and not some other household expense. As the example above shows, there are major advantages to paying off debt in a shorter period of time.
Select the best credit card
Tip #4 is to 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, and 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. 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.
Keep up with changes made by banks and lenders
Tip #5 is 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.
Sometimes you will get information or an offering from debt settlement companies or similar organizations. Review these as well, and focus on the fine print! Or five find suggestions from Consumer Credit Counseling Services.
Contact your lender
Tip #6 is if you are not satisfied with account changes, new fees, or if you have simply made an error in paying your credit card bill, call the bank or lender. Be sure to ask for help, and negotiate 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 for help and assistance. You just need to ask for them
If the customer service representative tries to discourage this, you can gently “push back” on them. Also, 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.
Be aware of “tricks and traps”
Tip #7 is 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 sadly almost all credit card issuers try.
Learn about credit card debt forgiveness.
Another option, or tip #8, is as follows. Many banks and lenders are beginning to be more open and more willing to forgive credit card debt. Or they are able to help consumers in other ways. Communication is one of the key to make this work. Learn more on how to get out of credit card debt.
Pay more principal on your debts every month
This tip #9 is very important. To accelerate the time it takes you to eliminate your credit card debts, no matter what tip number is used, 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 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. 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 debt as the impact is huge!
Explore payday loan laws
If you have used a predatory lender, then this tip #10 involves them. Most state government have implemented laws and regulations to help people get out of debt, in particular around payday loans. More regulations are protecting consumers. The interest on these types of loans can be in the hundreds of percents, which is unaffordable. Many people have turned to these salary advance loans in difficult times. Click here to learn about the payday lending laws for your state.
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 and expenses 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.
Take advantage of federal government help with paying credit card debt
Tip #11 - The federal government continues to put more and 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.
These 12 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! Do not rely on bankruptcy, or some unlikely government bailout to help.