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Try to be smart and not let money control you. Let’s look at some ways to pay off credit card debt quickly.
You need to come up with a strong, solid strategy which will usually start with examining and studying the situation very carefully. First, make a list of all credit cards you possess. Then for each card, check the credit limit, amount of balance to be paid, the minimum monthly payment, interest rates and other related significant information. This will help you form a very clear picture of your debt, and where you stand. This process will also help you know which cards have the maximum amount of debt to be paid off. Yes, all of this sounds overwhelming and stressful, but don’t worry. This will help you with making a concrete strategy to tackle the situation.
Consolidation of all your credit cards is something you might consider if you have several credit cards. In such cases, you’ll find yourself making multiple payments each month for all these cards with various interest rates per card. Consolidating these payments into a lump sum payment which is manageable monthly, makes more sense. This is especially useful when the credit card debt is too much. It will be easier to pay a lump sum balance than pay several balances. It’s a viable and feasible way, simplifying the whole process and it may even end up smoothening the process of keeping a track on various interest rates than if you continue paying each balance card-wise separately.
Don’t tiny victories make you feel satisfied and motivated? Similarly, tackling the smallest debt might be the wiser thing to do. Yes, it must be tempting and even make sense to knock off the biggest debt on your head. But if you possess more than one credit card with various amounts of balance, then ticking off the smallest balance will be very profitable. Choose the card with the smallest balance to be paid off and try to settle payments which are double/triple of the principal amount, or how much ever you can afford for the month. Simultaneously make sure the minimum monthly payments are going on for your other credit cards because neglecting those payments could lead to dire consequences.
This is called the payoff strategy — knocking off the lowest balance first and then moving on to the next lowest balance needed to be paid off. This snowballing effect will boost your morale because you will see zero balance on credit card payments soon enough when you start implementing this. This will in turn keep you motivated to fight off other debts on other cards eventually.
Do you know how much interest you end up paying for your credit card balance just like that? These interest charges on your credit cards can eat away at your savings, speedily. In order to keep your debts from increasing, you might want to instead focus on paying off the credit card balance with the highest interest rate first. Again, follow the same principle. Pay double or triple of your minimum payments on the card having highest interest and the most expensive monthly payment, while simultaneously continuing to make the minimum monthly payments on the other credit cards. This strategy, which can also be called debt-must-go strategy, is the most efficient and aggressive way to kill your debt. But yes, this does take a hell lot of discipline to stick on to especially if it’s a case of hefty balance. Once this card is done, move on to the next credit card with the next highest interest rate and so on and so forth.
Some people may debate as to which payment strategy to adopt. The best method is whatever works for you. Some people are motivated by numbers, while some prefer the feeling of elation on having achieved something. Choose a strategy that fits your ideas and stick with it. You may even go for a combination approach, for instance, the credit card having the highest interest rate may have the lowest balance.
When used correctly, the transfer of balances can be an excellent way to get rid of debts. You can consider transferring your balance to a low rate (APR) credit card. There are many credit card providers who offer 0% introductory APRs to customers who transfer their balance from another card to theirs. That introductory offer APR will expire in a given period of time — usually within 12 to 15 months, though some of them even last as long as 18 to 21 months. Now, there’s a catch. Most offers involve a transfer fee which typically comes up to 2% – 5% of the balance amount transferred. For someone having a high-interest rate credit card, the balance transfer card can be a lifesaver.
As a word of caution, be aware of all the terms and conditions of the credit card you’re considering to opt for balance transfer and be wary of adding any charges to the new credit card. Remember, this card is to help you pay off your debts and not create new ones. The objective of this card should be to pay off all the debt before the introductory offer of 0% APR expires.
There’s another option to pay off all that debt. Take a personal loan. Also referred to as debt consolidation loans, they can be a great option for individuals who cannot stop the growing credit card balance. Personal loans are loans on installment— where borrowers agree on making a fixed monthly payment at a particular interest rate for a certain period of time. Meaning, in opting for the loan and using all that money to pay off your credit card debt, you’ve given yourself a definite date in which that debt will be completely paid off and you’ll be financially free.
You need to keep in mind that you’re confining yourself into a fixed monthly installment. If you get stuck anywhere, you can’t make do with making a minimum payment as you would do for a credit card. Plus, interest rates on these personal loans are basically decided as per your credit scores. This means you might or might not be eligible for a lower interest rate than the one you’re already paying.
It will actually help to read all the offers carefully and do some good homework and research on the lending parties before consideration. You need to make a note of the following points while looking for a personal loan:
- If your credit score is enough for you to be eligible for lower interest rates.
- Check if the APR you will qualify for will be lesser than the one your credit card carries.
- The time duration you’ll have to repay the loan.
- Check if you can afford the monthly installment. Keep it such that it fits into your budget and you don’t have to give up the bare necessities.
- Check if there will be a penalty charged if the loan is repaid back within the due date.
Debt consolidation loans can have another side to it as well. It doesn’t help many people get ahead. Why, you ask? Because while people obtain loans to pay off their debts, they don’t let go of the behavior of theirs that created the debt in the first place. Before applying for such a loan, track your spending for at least a week or two, create a budget and follow it, and make sure there are savings made. Otherwise, there will be more debt than you started off with.
This is the perfect time to re-evaluate your financial standing and redesign your budget and expenses. You need to sit down and make a list of avenues that are creating a lot of debt for you. Trimming your expenses in unnecessary areas is a must. Imagine those subscriptions which are just taking in all your savings but aren’t of much value to you.
Like the monthly gym membership subscription which you hardly use once a month, or those fancy beauty subscription boxes which you get every quarter which you can totally live without. Apart from the subscriptions, there are a lot of other services for which we pay for unnecessarily. For instance, try finding ways to cut down on your bills. There are innumerable small ways to lower bills that can make a big difference.
Debt isn’t and doesn’t have to be forever. Get your financial planning game on and ace your journey towards being debt-free!