Credit card debt is the most expensive type of debt that you can have. The reason is that it is an unsecured debt, which gives credit card companies the reason to charge at an outrageous rate. Market competition in the U.S. may have lower down credit issuer’s rates, but still, they are undeniably high. An interest rate of 18% per annum is no joke. Some even offer 20%. When you are maxed out and an emergency pops up which means you can’t make the payment, the interest charges begin. Paying off credit card debt is no easy thing to do, especially if the debt is growing at an intimidating rate. It’s true, it may really scare you, but instead of focusing on being scared, you should focus on how to address the growing problem. Here are some simple tips on the best way to pay off credit card debts.
Make bold payments. Don’t just pay the minimum amount required by your credit card issuer. Yes, minimum payment may keep you from getting charged with late payment fees, but the sad truth on minimum credit card payment cycle will result in a growing principal debt amount. How so? When you pay only the minimum amount, say this month, the interest is charged on the total unpaid amount for the next billing cycle. Those interest charges automatically become part of your total debt, which will then be charged again for the next billing cycle…on and on until it snowballs into a huge debt. The minimum amount required by creditors may help you take a breather if there’s really no other option, but if you have extra money, do add it to your credit card payments.
Stop charging your card
Want to stop the growth of debt? Quit the habit of swiping your card while you are still trying to pay it off, especially for credit cards that charge interest even on new purchases, when you already have current balances. That means, when you already behind your payments, any new purchases will have interest charges. Not all creditors do this but make sure to check yours, especially if you are still actively using your card.
Prioritizes ones with the highest balance and interest rate
A huge total debt amount and a high-interest rate are a killer combination. If you have this combo in your account, make sure to prioritize that debt because that is the one that will try to bring you down every month. Keep paying the minimum or a little above the minimum on your credit cards with lower interest. Then once you are done with the top priority debt, move on to the next account.
Consolidate your debt into a lower interest loan
If you can find a creditor who can loan you an amount that can cover all your accounts at a favorable interest rate (meaning, lower than your average interest rates combined), then go and take that loan. There are also credit card companies that offer introductory rates for new cards at 0% APR for the first 12 or 24 months. Take advantage of those offers by transferring your debt to a zero interest account, then pay as much as you can within that introductory period.
Consider debt relief options
If you think you already need some help in getting out of debt, consider some alternative debt settlement and debt relief options for you. These programs can reduce your debt by a huge percentage at a short period of time, typically within 24-36 months. In debt settlement, a debt settlement company negotiates your debt with your creditors on your behalf, then pay the negotiated amount on a stated schedule. You make monthly contributions to your own account, which will be used by your debt negotiators to pay to your creditors. Such payment may be partial but it is ought to be considered full payment. Debt settlement is probably the fastest way to get out of debt, although there can be negative effects on your credit report. However, if your top priority right now is getting out of debt rather than having a perfect credit score, then debt settlement might be a good option for you.