Getting into credit card debt is very easy. Credit cards are heavily marketed to consumers through the Internet, through the mail, and even in person at events and onboard aircraft. In addition, card issuers are willing to offer applicants large lines of credit with very little verification of their income. Finally, credit cards are so easy to use, that it barely takes a moment to charge thousands of dollars’ worth of purchases.
But once you are in credit card debt, you will discover that it is not only very costly, but it can also be extremely difficult to pay it off. As unsecured debt, the interest rates on credit cards will be higher than a loan that is secured by a car or a home. And if you continue to use your card for daily expenses, then your debt could continue to grow despite your payments.
How to start paying down your debt
As the saying goes, if you find yourself in a hole, the first step is to stop digging. Likewise, cardholders who realize that their debt is out of control should start by using another method of payment going forward. Doing so will accomplish three very important goals. First, your debt will not keep growing, and second, you will not be incurring interest on all of your charges. Third, using cash or checks will be less convenient and can act as a speed brake on your spending. The plan is not simply to reduce credit card debt, but to reduce spending as well.
Next, you will want to do everything possible to reduce the interest charges you are paying on your credit card debt. One option is to apply for a card that offers 0% APR promotional financing on balance transfers. These accounts allow cardholders to transfer and consolidate their existing debt from other credit cards, and the new balance will not incur any interest charges during the entire promotional financing period. Unfortunately, nearly all of these promotional balance transfer offers will have a 3% balance transfer fee added to the new balance. The exception is the Slate card from Chase, which offers 15 months of 0% APR financing on both new purchases and balance transfers, with no balance transfer fee. Other offers can extend as long as 18 months, giving you a valuable break from costly interest charges.
Another downside of these offers is that they are only available to applicants with high credit scores. So if you are in debt, it’s vital that you maintain regular, on-time payments to ensure that your credit score remains high enough to qualify for these valuable offers.
If you decide to open up a credit card with a 0% APR balance transfer offer, it’s also important to use this offer as a way of paying down your debt, not postponing it.
The end of these limited time promotional offers makes for a perfect repayment goal. Furthermore, there is no reason to assume that you will be able to qualify for another balance transfer offer in the future.
Other strategies for quickly reducing debt
Beyond promotional financing opportunities, there are several other ways to pay down your debt sooner. First, it is important to understand that credit card interest is calculated based on your card’s average daily balance. That means that whatever charges or payments occur each day will be used to calculate your interest charges.
Of course, the most important piece of advice is not to pay just the minimum balance each month, but to pay as much as you can afford. But beyond that, it helps to make payments as early as possible. Doing so will immediately reduce your average daily balance, starting on the day the payment is received and credited to your account.
Given the fact that payments immediately reduce your account balance and your future interest charges, there is another strategy that you can use to reduce interest charges. By making multiple payments each month, each payment will have an effect on your balance. For example, you could choose to coordinate payments to your credit card issuer to coincide with your paychecks. So long as the total amount of payments exceed the minimum balance, and are made before the payment due date, it doesn’t matter how many payments you make, or in what amount they are.
Another strategy to pay off your debt sooner is to use a home equity line of credit. Since home equity loans are secured by your deed, and can be tax deductable, they are typically far less costly that the standard interest rate on a credit card.
Budgeting for debt repayment
No matter how many tips and tricks you employ to reduce your interest charges, the most important factor in your debt repayment will be how much money you are able to find to pay off the charges. Maximizing the money you have available for debt repayment will require a combination of increasing your income and reducing your expenses. Income can be increased by selling unneeded assets such as appliances or furniture that you no longer use. Others may be able to increase their income by requesting more hours from their employer, or taking a side job.
When it comes to reducing expenses, you can always be more frugal when it comes to dining or entertainment expenses, and it always makes sense to use energy as efficiently as possible.
When credit card users set a realistic goal of debt repayment by using a reasonable plan to reduce interest charges, increase their income, and cut their expenses, they will always come out ahead in the end.
What ways have you used to get out of credit card debt?