Tips For Paying Off Credit Card Debt
It may seem easier to just ignore it, but your unmanaged credit card debt will haunt every step you take. It may sound like a daunting task, but you can pay off your debt with order and dignity! To attack your debt effectively, use the following strategies.
Make more than the minimum payment. Credit card companies love it when you pay just enough to get by every month. At that rate, you’re mostly paying off interest and barely scratching the surface of your actual debt.
Look at your most recent credit card statements to get a ballpark figure on what your monthly interest is, then budget as much of a payment as you can over that amount to actually see a difference in your statement.
Pay off debt with the highest interest rate first. It goes almost without saying, but it’s something that a lot of people forget. If one credit line is charging you 11% Annual Percentage Rate, or APR (interest over the course of a year) while another credit line is charging you 9% APR, focus all your attention on the debt that falls under 11% interest rate. Pay it off before even touching the other debt. Sure, the other one will accumulate interest in the meantime, but since you’re paying interest either way, you might as well do it at the lower percentage.
Talk to your credit card companies. Explain your financial situation and ask if there is anything they can do to help. Many will lower your interest rate for a period of time and/or waive current late fee balances to give you an opportunity to catch up.
Never close cards with existing balances. It might seem like an easy way to get a handle on your debt, but it’ll do horrors to your credit score, and you’ll still be on the hook for the debt. All this will do is send your credit utilization (your available limit v. your current debt) down, further driving down your credit score. Learn more here on how to increase your credit score.
Move your debts around. Let’s be clear, transferring money from a credit card with 12% interest to a card with 0% interest may damage your short-term credit. However, barely chipping away at your debt because your interest is too high will damage your finances in the long-term. Shop around for long-term, low- or no-percent interest rate transfer opportunities, or look into transferring some of your debt onto a low-interest card that you already have.
See what you can liquidate to lower your debt. No one likes doing it, but sometimes it needs to be done. If you just bought a car, a memory foam mattress, or a new jacuzzi, think seriously about whether you really need these items, especially if you’re paying for them on installment. Liquidating your big-ticket items now will mean less financial hardship for you later on.