5 Ways on How to Get Rid of Credit Card Debt
Each month, when all of those dreaded statements come in for your charges to those plastic cards in your wallet, your card issuer usually lets you know that you don’t need to payoff the balance. “Just pay this minimum payment”, they tell you, and before you know it, you have a high outstanding balance. Now you begin to wonder how to get rid of credit card debt.
Unfortunately, now it’s not so easy. For some individuals, there may have been a good reason why they only paid the minimum payment each month. Problems such as unforeseen medical cost, or the family car passed away, or even loss of a job.
But for many others, it was just poor cash management. They didn’t have a budget and didn’t have a clue where all of the money was going. Impulse spending with a credit card doesn’t take long to accumulate a very high balance. The average household credit card debt in the USA is around $16,000, and with the higher interest rates, a lot of cash is going down the drain.
How to get rid of credit card debt should be your primary focus. There’s only one way to begin, and that is to STOP using those credit cards. Don’t carry them with you, because for many, the temptation to buy something may be too great.
Start by listing each credit card with the outstanding balance, interest rate, the monthly payment, and the utilization rate. (More on this rate later) There are many opinions on this, but we and many financial planners, like to use the five strategies that will show you how to get rid of credit card debt.
1. If you’re like most, you have several credit cards with hefty balances. Pick the one with the lowest balance and this is the one that you will payoff first. You’ll continue to pay the minimum balance on the other cards, but all available cash will be applied to the card with the lowest balance.
Totally paying off one credit card will give most individuals a psychological boost and this is what we’re going for. If your goal is paying less interest, then you would pay off the card with the highest interest rate first. If your primary concern is boosting your credit score, then you should concentrate on paying off the card with the highest utilization rate.
Whenever you use more than 20% of the card’s approved limit, your credit score gets dinged. The utilization rate is calculated by dividing the amount owed on the card by the approved limit.
2. Contact each card issuer and request a lower interest rate. If your credit score is good (above 730), and you’ve made payments on time for a while, they will often lower the rate a couple of percentage points. It might not seem like much, but it could amount to several hundred dollars a year in savings.
Sometimes, another credit card issuer may make you an offer for a card with a lower rate. You can let your other card issuers know and they will usually match the offer.
3. A third strategy is a high interest rate balance transfer, and you must be extremely careful in doing this. You can often times find a credit card where they will offer you a lower rate if you transfer a balance to them. This can potentially be a smart move and could save you hundreds of dollars a year.
Be very careful of these offers, though, as the low rate might only be good for 12 or 18 months. If the entire balance isn’t repaid in full in that time, your interest rate can increase substantially. It’s also possible that the new card issuer may charge a fee for doing the transfer, so be sure to calculate this into the transaction.
4. Another possibility to consider is using a peer-to-peer lender. There are sites online that will make loans with a fixed rate of interest that are much lower that credit card issuers. If you’re employed, and have a good credit score, you may qualify for an online loan. That loan would of course, repay all of your credit card balances in full.
5. Another excellent strategy is to make extra payments on the credit cards every month. What this means is to send the money to the credit card company two or even three times each month. Don’t hold the extra money in your account and mail it in once a month. Your interest is calculated on a daily basis, so it’s to your benefit to reduce the balance as quickly as you can.
Here’s an illustration as to how this works, and it will blow your mind. If you had a credit card with a balance of $2,000 with an interest rate of 17%, and you paid the minimum payment once each month, it will take almost 21 years to payoff the balance.
If you paid that same minimum payment when your statement came in and then paid the same minimum payment again two weeks later, the card balance will be paid in full in about 3 years. This is why credit card issuers love people that keep paying the minimum payment every month. They make a lot of money!
There are different strategies available that will tell you how to get rid of credit card debt. If you’re in this situation, then please stop using your credit cards. Create a budget and find out where your money is going. Use all available cash to eliminate debt and one day you may find yourself enjoying debt free living.