How can you get out of credit card debt faster and without impacting negatively on your credit score?
You can easily get carried away when using your credit card – there isn’t anything you can buy with it. But that’s the problem with credit cards – you are buying more and more, not thinking whether you’ll be able to pay all those bills and soon enough you find yourself deep in credit card bills that you don’t know how to deal with. And what’s worse – the less able you are to pay those bills, the worse your financial situation gets.
Recent years have shown that interest rates have been constantly rising, as well as prices of services and commodities, making people’s credit card debts even bigger.
If you have found yourself in this situation, you need to know that it will take time and determination to successfully get rid of your debt. However, if you consider the following options and tools, your struggle could be less hard than expected.
1. Deal with One Credit Card First
Table of Contents
In case you have balances on several cards, it will be a long fight to get all of them in order. Instead, motivate yourself by concentrating on the one card that will bring you to your goal. It’s better to start with short-term goals to feel that you are actually achieving something.
So, put as much money as you can on the card with the lowest debt if your goal is to completely pay off one card – the snowball method. In other words, make minimum payments on all your accounts, but put the rest of the money you can afford toward the card with the lowest debt. This way, you’ll be done with the first card very quickly and boost your confidence.
In case your goal is to boost your credit score, then deal with the card with the highest utilization rate – bringing the utilization rate down may increase your score.
Lastly, if you want to pay less in interest, then it’s best to start with paying off the card with the highest interest rate – this is what is usually called the avalanche method: choose the card account with the highest APR rate and play the minimum plus any extra you can afford, while only paying the minimum for the other cards.
Do this every month until that card debt is paid off, and then move on to the next card with the highest interest rate, taking every dollar that was used for the first card and use it for the second one.
2. Ask For Lower Interest Rates
Sometimes even a phone call to your creditor/the issuer is enough to get a reduced rate, so it’s definitely worth a try. Of course, it comes under the condition that you have learnt how to maintain a good credit score and that you are a long-term customer who has so far been paying on time.
It is possible you’ll get a cut of 1 or 2 percentages, which could turn out to be even hundreds of dollars on annual basis.
Also, a very useful thing to do is to tell the customer service rep if the competitor has offered you a lower rate – it’s very likely they will match the offer.
3. Use a Peer-to-peer Lender
There’s also the option to visit secure sites that offer loans with fixed interest rates, meaning you could pay off your card from a peer-to-peer lender.
Interest rates from this type of sites could be even 20-30 percent lower than most credit cards, allowing you to save hundreds of dollars of interest. In you are employed, with a good credit score, you can make an online request and get a loan up to $25,000.
4. Find Ways To Save More Money
No matter what options you are considering to help you get out of credit card debt, you need to find a way to save money at the same time. There are always ways to trim your expenses and earn more. Consider giving up on cable TV, canceling the gym membership and skipping eating out. We always have some luxuries that we can give up on if needed, you just need to determine what yours are.
Also, if you think some extra income would come in handy, then try to find a part-time job or to make money from your hobby – even a small amount of extra money will be of significant help at the end of the year. Just keep in mind that your primary source of income mustn’t be endangered.
5. Debt Consolidation
If you want to reduce the number of payments that have to be made each month, making them manageable, you can opt for a credit card debt consolidation loan, which is a quick and simple solution. However, you should stop compulsively using your credit card then – in other words, you need to keep your spending habits in check. If you choose debt consolidation, you should start by determining what the maximum spending limit on your cards will be and then stick to it. Next step would be to identify what the minimum compulsory expense should be in order to rebuild your credit score.
A great help here would be to download a monthly budget template that will allow you to chart your monthly expenses and income, as well as any potential penalties and overheads. This will make clear to you what your priorities should be and where you can make an additional cut on expenses.
6. Ask For Help
If you still feel you need help to manage your expenses, get rid of credit card debit and choose the right solution for you, you can always consult experts that will help you with money management tips to stir you in the right direction and find you ways to save more money. It’s important not to wait for too long if you feel you can’t handle the situation on your own – the more you wait, the bigger your debt will get.
In essence, finding your way out of your credit card debt has to be a combination of careful planning and persistence – only in that way will you be able to get rid of your debt completely.