One Great New Year’s Resolution: Cut Credit Card Debt
The best gift you can give yourself in the new year or any time, is freedom from
credit card debt. Even with a relatively low-interest credit card, you’re literally
throwing money away every month if you don’t pay off the entire balance.
Consider: If you have a balance of $5,000 on a credit card at 14% interest and
make only the minimum payment due each month, it would take you 22 years
and $5,887 in interest to pay it off.
If you’ve gotten yourself into significant credit card debt, the situation may feel
hopeless, but it’s not. Billshark offers eight simple ways to get yourself out.
1. Take stock of your bills
Ignoring the problem won’t make it go away. If you sit down and look at your
credit card situation, you may find it’s not as dire as you think it is. Look at which
cards you have, how much you owe on each, how much the interest rate is, and
what the minimum monthly payment is.
2. Prioritize your money
Next, tally your monthly income, putting the most important bills at the top
(rent/mortgage, utilities, gas/transportation, food and other necessities), then see
what’s left to pay on your credit cards.
3. Negotiate lower rates
If you have good credit, call each of your credit card companies and ask for a
lower rate. You may be surprised to find how easy it is to get them to agree to
this. They’re making a bundle off of you in interest rates, and they won’t want to
let that go, so they’re often willing to lower your rate to retain you as a customer.
4. Balance transfers
If you have credit cards, you constantly receive offers from each of them to
transfer your other card balances at a low—sometimes 0%– interest rate for a
fixed period of time. Sometimes this period can be as long as 21 months. This is
an excellent way to use their money without interest for that period, and use the
savings toward paying off this card.
A word of caution: Banks never give away something for nothing. First, they’re
betting you won’t pay off this new balance before the higher interest rate kicks in.
Second, there’s always a “balance transfer fee,” typically a percentage of the
balances being transferred. Calculate whether this fee will actually cost more
than what you’d save in interest on the other cards.
5. Use the “snowball” method
Begin with your highest-interest credit card and put every spare cent into paying
that one off. When you’ve done that, take the payment from that card and add it
to the payment you’re already paying on your next highest-interest card, and so
on. In addition, apply any windfalls (tax returns, bonuses, savings Billshark
finds for you, etc.) to whichever card you’re working on paying off.
6. Pay twice a month
This trick has been used for years by mortgage holders to pay off their mortgage
sooner. If you’re paid twice or more a month, make two payments on your credit
card balance each month. Doing this reduces the average daily balance on your
credit card, resulting in lower interest charges on the full balance.
7. Consolidate debts
As a last resort, you may be able to obtain a consolidation loan from your bank or
a private lender with a lower interest rate and payment than you’re making on all
your credit cards. If you really can’t swing the payments on all your cards, this
may make sense. But if you go this route, it’s critical that you stay off your credit
cards. A consolidation loan is not license to run up more credit card debt. Put
them away, but don’t cancel them, because part of your credit score is calculated
on how much credit you are using vs. how much you have available. The less
you’re using, the higher your score.
8. Ask about debt forgiveness
If you’re seriously in debt and cannot afford to pay it off, talk to your creditors
about debt forgiveness. They will often settle for a lesser amount than you owe,
or offer you a repayment plan that you can afford. This will impact your credit
score, and you may have to pay taxes on the amount forgiven, but it’s better than
filing for bankruptcy.
And as always, let our sharks help you find “hidden money” on your bills that you
can put toward lowering your credit card balances.