In modern society, most people feel constantly stressed out over their finances. Everything around you makes you feel like you do not have enough money. There are many people out there who either struggle with their monthly bills or are constantly unable to afford the lifestyle they desire. Such people usually tend to carry a balance on their credit card long after their grace period has expired and so that debt grows more and more. There are, however, some ways for people with credit card debt to pay it off and regain their financial freedom through good repayment strategies or with a credit card debt consolidation. Below, we are going to discuss what a credit card debt is, how it works and most importantly, how to pay off credit card debt.
What is a credit card debt?
Credit card debt is a type of unsecured debt that it accessed through a credit card. Even though all purchases by a credit card, technically, create a debt to the person using that card, these debts usually do not incur interest before the grace period expires. Therefore, people who are paying off their credit card balance each month are normally not considered to have credit card debt. Credit card debt applies more to people who continually keep carrying a balance on their credit cards after the grace period has already expired and therefore the debt begins to bear interest.
How to pay off your credit card debt
For many people, it may seem a lot easier to ignore their credit card debt. However, the longer this credit card debt stays unmanaged, the worse it is going to get. Even though paying off your credit card debt is not going to be an easy task, it is definitely not impossible to be achieved. Here are some strategies that you may want to use to deal with your credit card debt in a fast and effective way.
Make more than the minimum monthly payment
There is nothing that credit card companies love more than clients who pay just enough to get by each month. By doing that, what you are mostly paying off is interest. You are only paying bits off your actual credit card debt. Take a look at some of your recent credit card statements to get an actual idea of what your monthly interest actually is. Once you have done that, to really see the difference in your statement, budget as much of a payment as you possibly can over that amount.
- To know how much above the minimum payment you should make each month, you have to know what interest is. Interest is the price you pay for using the money. So when you are making only minimum payments each month, what you do is keeping your interest from reaching sky high. But that is all. What you want to do each month is to pay an amount that goes over and beyond that interest, an amount that helps taking care of the principal.
You should first pay off the debt that has the higher interest rate
Even though it looks like this is pretty obvious, it is still something that many people forget to do. If there is a credit card charging you 12% APR (annual percentage rate) while there is another one that is only charging you 8% annual percentage rate, you should concentrate on the debt that is under the 12% interest rate. You should make this debt your absolute priority over the other one and make sure you pay it all off before you even acknowledge the existence of the debt with a smaller annual percentage rate. Of course, while all your focus is on the debt with higher annual percentage rate, in the meantime the other one will accumulate interest, but since you are going to pay interest anyway, it is better to do it on the debt that has a lower annual percentage rate.
If doing this sees like a too hard of a task, you can try to snowball your debt. If the interest rates you have are pretty much all the same or you are just overwhelmed by the number of payments you have to deal with each month, make minimum payments on everything except the lowest balance. This one you should attack as hard as you can, so that it can disappear as fast as possible. Once that payment is gone, take the same course of action until the next debt disappears. Repeat that strategy over and over until there are no more debts for you to repay. With every debt you repay, you will feel more confident. That way, you will gain strength to finish what you have started and achieve your goals.
Have conversations with your credit card companies
Talk to the credit card companies you are working with and try to explain what the financial situation you are in and see if there is anything they may be willing to do to help you. There certainly are credit card companies that may lower your interest rate for a certain period of time. Others may waive your current late fee balances.
- In case you have been their client for a long period of time, you may want to mention that in your conversations. While there are credit card companies that do not really care whether you are a loyal customer or not, there are others who would really appreciate it. Such credit card companies usually do whatever they can in order to keep their customers loyal and happy for as long as they can.
If you fail at your first attempts, do not give up. Go to someone that is higher in the hierarchy. If you do not make any progress with the person you are speaking to, speak with his supervisor. If that also does not take things in the right direction, say that you want to speak to the retention department. If that attempt also fails, try calling back in one or two weeks.
- When you go to a meeting with your credit card company, you need to go absolutely prepared for it. Make sure you have a list of other offers you have received. You have to know the terms of your interest rate and check the interest rates that their competitors are offering so that you can use that information to your advantage.
Closing cards with existing balances is something you should never do
While such action may attract your attention and seem like a simple and easy way to get a handle on your debt, what is actually going to do is absolutely ruin your credit score and so you will still be on the debt hook. Instead you should think about how to increase your credit score.
- If there is an account that you think you have to close, you will need to pay it off as fast as you possibly can. You will also have to ensure that the credit card company records show that this account was closed not upon their request but upon yours. Do not forget to make the request in writing.
You need to move your debts around
This should be very clear. Transferring from a credit card that has 11% interest rate to a credit card that has 0% interest rate may really damage your short-term credit. Having said that, however, if you barely chop away your debt because of the high interest rate, that will surely damage your finances in the future. Look around, find opportunities for low-interest rate, long-term credit. Maybe consider transferring some part of your debt into a credit card with a low interest rate that you already have. Here are some things you may want to keep in mind:
- Think about how long the low interest rate is going to last. Depending on your specific situation and the total amount of debt you need to repay and the speed you will be able to pay it off, a 0% interest rate for a period of six months may be worse than 2% interest rate for a period of 18 months.
- Think about what the interest rate will be after the end of the introductory period. What if it jumps to 16% after a year? And if that happens, do you think that you would have managed to pay off enough of the debt amount by the time this jump in the rate occurs?