How to Pay Off Credit Card Debt: 13 Steps (with Pictures) #debt #settlements



#credit card debts

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How to Pay Off Credit Card Debt

Make more than the minimum payment. Credit card companies love it when you pay just enough to get by every month. At that rate, you’re mostly paying off interest and barely scratching the surface of your actual debt. Look at your most recent credit card statements to get a ballpark figure on what your monthly interest is, then budget as much of a payment as you can over that amount to actually see a difference in your statement. [1] [2] [3]

  • If you want to know how much above the minimum you should pay, remember what interest is. Interest is the price you pay for money, and creditors always want you to pay interest before anything else. So making the minimum payment is usually only enough to keep your interest from compounding your debt into the stratosphere—to keep it where it is, in other words. You want to try to pay enough each month to get beyond the interest and into the principal.

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Pay off debt with the highest interest rate first . It goes almost without saying, but it’s something that a lot of people forget. If one credit line is charging you 11% Annual Percentage Rate. or APR (interest over the course of a year) while another credit line is charging you 9% APR, focus all your attention on the debt that falls under 11% interest rate. Pay it off before even touching the other debt. Sure, the other one will accumulate interest in the meantime, but since you’re paying interest either way, you might as well do it at the lower percentage. [4]

  • If this process seems too hard, try snowballing your debt. If your interest rates are all roughly the same or you’re simply overwhelmed by the sheer number of payments you have to make each month, make the minimum payments on all but the lowest balance––which you should attack aggressively so that it disappears quickly. Once it’s gone, add the payments you would have paid on the lowest debt to the minimum payment on your next-lowest debt until it, too, disappears. Repeat until all debts are cleared. The sense of satisfaction you will feel in making fewer and fewer payments each month will make the process more bearable and help you achieve your goal. [5] [6] [7]

Talk to your credit card companies. Explain your financial situation and ask if there is anything they can do to help. Many will lower your interest rate for a period of time and/or waive current late fee balances to give you an opportunity to catch up. [8] [9]

  • If you’ve been a customer of theirs for a long time, mention that. While some credit card companies don’t care about customer loyalty, more than a few do. Those that do sometimes go to great lengths to keep their customer base happy and loyal, whatever the circumstances.
  • If at first you don’t succeed, ask someone more important. If you can’t make any headway with the first persons you speak with, ask to speak to a supervisor. If that doesn’t work, ask to speak to the retention department. If that doesn’t work, call back in a week or two. [10]
  • Come prepared. Be sure to compile a list of other offers you recieve. Know your interest rate terms. Check out the rates that competitors are offering.

Never close cards with existing balances. It might seem like an easy way to get a handle on your debt, but it’ll do horrors to your credit score, and you’ll still be on the hook for the debt. [11] All this will do is send your credit utilization (your available limit v. your current debt) down, further driving down your credit score. Learn more here on how to increase your credit score.

  • If you feel like you must close an account, you need to pay it off extremely quickly, and you need to make sure that the company records that it was closed at your request and not theirs. Make this request in writing. [12] [13]

Move your debts around. Let’s be clear, transferring money from a credit card with 12% interest to a card with 0% interest may damage your short-term credit. However, barely chipping away at your debt because your interest is too high will damage your finances in the long-term. Shop around for long-term, low- or no-percent interest rate transfer opportunities, or look into transferring some of your debt onto a low-interest card that you already have. Keep the following in mind: [14]

  • How long the low interest rate will last. Depending on your total debt and how quickly you think you can pay it off, 0% interest for six months may not be as good a deal as 2% for 18 months.
  • The amount of the transfer fee. When transferring, you usually have to pay a certain percentage of your debt up-front. Make sure that a) you can afford this transfer fee and b) the fee is less than you would have paid in interest during the introductory period. Usually, transferring to a low-interest card will involve less fees than transferring to a no-interest card. Weigh how much time you expect it will take to make a dent in your debt when choosing to transfer. [15]
  • What the interest rate will be after the introductory period ends. Will it jump up to 18% after 12 months? If it does, will you have paid off enough debt by that time to make that jump worth your while?
  • How long you will be required to keep your balance with the company. Since credit-card hopping has become a popular way to avoid paying interest, some companies have begun stipulating that if you transfer your debt to another card before a certain amount of time has passed, the normal interest rate will be applied to all your previous balances retroactively, leaving you with a huge new debt. [16]
  • Make sure to read all the fine print! Credit card companies are nothing if not resourceful in finding ways to take your money. Look for all the catches above and more, such as transfer fees and ballooning interest rates, before making any decisions. [17]

See what you can liquidate to lower your debt. No one likes doing it, but sometimes it needs to be done. If you just bought a car, a memory foam mattress, or a new jacuzzi, think seriously about whether you really need these items, especially if you’re paying for them on installment. Liquidating your big-ticket items now will mean less financial hardship for you later on.

  • Always try to find the sales venue that will get you the highest resale value. Think eBay and jewelers, not pawn shops.
  • Get creative and do the math. For example, if you have a car payment, if you can sell your car (even for less than the note is worth) for enough to pay off a card balance or three with higher interest rates and perhaps pay off the interest on the car note, then it makes financial sense to do that.

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