Tuesday, March 21, 2023

How Can I Pay My Credit Card Debt Off

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What You Need To Know

How do I Pay Off my Credit Card Debt Faster? l Snowball Debt
  • Revolving debt primarily comes from credit cards where you can carry, or revolve, a balance from month to month
  • Installment debt comes from mortgages, car loans, student loans, and personal loans
  • With both types of debt, you must make payments on time. When you miss a payment, your lender could report it to the credit bureaus

Home Equity Loans Or Lines Of Credit

Similar to loans earmarked for debt consolidation, home equity loans or home equity lines of credit can allow you to put your loan towards existing credit card debt. Given that these loans are secured by your home, you can often have higher loan limits than a personal loan. Of course, the risk involved is that if you are unable to regularly meet the payment terms of your home equity loan or line of credit, the bank can foreclose on your home.

Like a debt consolidation loan, it can be attractive to wipe out your credit card debt all at once through a home equity loan. But, as you take on your monthly loan payment, take care to monitor and limit any of your credit card expenses to be certain that you don’t build another debt that you can’t repay.

Consider Paying Off Debts Before Investing

The issue of whether or not to invest while paying off debt can be thorny. On the one hand, the interest in your credit card debt will likely eat up any gains in the market. That said, debt repayment is a long process. Hannah recommends staying in the market. Yes, people should still invest while paying down their credit card debts, he says. The rates are substantially lower than in previous decades, so for a person to have a reasonable income in retirement they have to save longer and more. Some companies, he adds, have RRSP-matching programs. It would be a shame not to participate, he says. Again, you have to take a long-term view.

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Borrow From Your Retirement Plan

Raiding your IRA or withdrawing money from your 401 is not a prime option, since there is a 10% penalty if you withdraw money before age 59½. It became temporarily less risky after Congress approved the first COVID-19 stimulus bill in March 2020, which allowed those hit with a hardship related to the pandemic to withdraw up to $100,000, waived the 10% penalty and gave three years to pay it back. That plan lasted until March 21, 2021. After that, the old rules apply, which means a high fee, taxes on the money withdrawn and higher income related to how the withdrawal affected your income. And, with the interest accumulation lost, less money for your retirement.

Ways To Pay Off Credit Card Debt Fast

How I Paid Off My Credit Card Debt (With images)

This is a great time to get out of credit card debt. The economy is starting to work its way back to normalcy following the COVID-19 pandemic, and the average Americans personal savings rate has jumped to record levels.

Still, many people are stuck with high-interest credit card debt a burden that will only worsen when the Federal Reserve increases interest rates as early as next year.

In other words, the time to get to work whittling down that debt is now especially if you were able to save money over the course of the pandemic. Here are six smart strategies to help you out.

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Tips For Minimizing Your Overall Debt

If you are struggling to make your debt payments, whether they be on your credit cards or personal loans, it could be a sign that your debt is beginning to spiral out of control. It might be time to actively reduce your debt to live more freely.

Here are some ways in which you can start paying off your debt to attain the financial freedom you deserve:

Sell Stuff You No Longer Use

You can make some quick cash . For instance electronics, clothing, shoes, and accessories you’ve never worn or no longer wear. You can try online sites to make your sales like eBay, , Poshmark, or at your local consignment stores.

Tip: Price your items competitively and review the feedback of your potential buyers very carefully before you sell.

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Build An Emergency Fund

An emergency fund is simply a savings account where you keep enough money to pay a few months worth of expenses in case something unexpected happens with your income.

Theres no set amount youll need, but most experts recommend between three and six months of expenses. For example, if you typically spend $3,000 every month, its best to work toward having between $9,000 and $18,000 in your emergency fund.

An emergency fund can also be used to pay off credit card debt before interest starts accumulating, so its a good idea to get one established as soon as possible. If you end up dipping into your emergency fund for unexpected expenses, make a point of building it back up as soon as possible.

Advice From Professional Financial Advisors

How To Pay Off Your Credit Card Debt

I did some research online and opinions vary. Some financial advisors recommend the tough love approach and say you should let your kids struggle so they learn a valuable lesson.

Others suggest that you loan your son or daughter the money to pay off their high-interest credit card debt, then theyll pay you back monthly with little or no interest.

I suppose this option could work, but Im not a big fan of it because what if theyre late on a payment? Then it puts you in the awkward position of having to ask them for the money. Even if they do pay you on time each month it can still be a bit uncomfortable because their payment is a constant reminder of their personal financial difficulty, one they probably wouldve preferred you didnt have to know about.

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Transfer Loan To A Balance Transfer Card

An instance in which it may be wise to pay off a personal loan with a credit card is in the case of moving your loan debt to a balance transfer card. By doing this, you could take advantage of a 0% APR introductory period reducing the amount of money you need to pay in interest.

Not every balance transfer credit card allows you to transfer a personal loan, but many credit card issuers do. Qualifying balance transfers of personal loan debt onto a credit card account with a low introductory period interest rate could allow you to save money and pay off your loan early.

Many of these credit cards have a balance transfer fee, but the additional fees could be well worth it with the interest savings if you can be sure of the credit card balance before the promotional period rates end.

Things to Keep In Mind When Considering a Balance Transfer

  • Some balance transfer cards only allow you to transfer credit card debt, so you will want to be sure that you find a credit card issuer that provides loan balance transfers on at least one of their credit card products.
  • The interest rate could increase rapidly once the promotional period ends on a balance transfer credit card, so it is crucial that you pay down the balance of your loan amount before the APR rises.
  • The amount that you owe on your personal loan and any balance transfer fee required cannot exceed the credit limit on the credit card you plan to transfer the balance to.

Use A Balance Transfer Credit Card

One smart way to get out of debt is to complete a balance transfer. You can transfer debt from high interest credit card to a balance transfer credit card that offers no interest for up to 20 months.

If you want a long stretch of time to pay off your debt, consider the Citi Simplicity® Card with an intro 0% APR for the first 21 months on balance transfers or the Wells Fargo Reflect Card, which also offers an introductory 0% APR for the first 21 months on qualifying balance transfers .

Balance transfer cards often have set maximum limits on the amount of debt you can transfer, and you can’t complete a transfer between cards issued from the same bank. Make sure you read the fine print before requesting a transfer. Also be aware that good or excellent credit is often required for a balance transfer credit card.

Find out more about how to make the most of your balance transfer.

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What Financial Advice Would You Have Wished To Hear When You Started Working

One financial advice I would I knew before when I started working is about the importance of investing.

All my life growing up the only thing I heard was to get a job to earn an income, pay off your expenses and the remaining save. This is true for the most part but what I should have been taught was to earn an income, a percentage of your income you save, pay off your expenses and the remaining earning you invest.

What Are Other Credit Card Repayment Methodsand Do They Work

How to Pay Off Credit Card Debt

Look, paying off debt is never easy. And theres a lot of buzz surrounding the idea of quick ways to get rid of your debt. Heres the truth: Theres no quick fix. Those tips we just mentioned are the tried-and-true route.

But we dont want to leave you in the dark. Lets take a look at the most-advertised ways to reduce debtand talk about why theyre so crappy.

  • Debt Consolidation. This is basically a loan that combines most of your debts into one single payment. This sounds like a good idea until you realize the life-span of your debt grows, which means youre in debt longer. And the low interest rate that sounded so good at first usually goes up over time.
  • Debt Settlement. Debt settlement companies will charge you a fee and promise to negotiate with your creditors or reduce what you owe. But typically, they just take your money and leave you drowning in the debt you already hadplus all the new late fees from when no one was paying on your balance.
  • .This is when you move all your credit card debt into one new credit card. Youll get hit by transfer fees and risk going blind reading the fine print. Okay, thats an exaggerationbut theres no exaggerating that a huge spike in interest rates will hit you like a ton of bricks if you make one late payment. This is trading a bunch of problems for one bigger problem. Dont. Do. It.

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Pay Off Another Credit Card

On average, Americans have four active credit cards, with an estimated balance of $6,194. If you have multiple credit card balances, paying off one is only the first step of your journey toward financial freedom. Once youve eliminated the first credit card bill, you could keep applying your financial discipline toward the next one. Consolidating multiple credit card debts into a single, lower-interest account is always preferable to having several active balances with separate terms, billing cycles, and interest rates.

If you’re forced to maintain several debts at once, you’ll get to zero sooner by making a large lump-sum payment toward a single balance each month rather than spreading the amount between all your accounts. Just continue making minimum payments on your other accounts to avoid late fees and keep your account in good standing.

Debt snowball and debt avalanche are two effective strategies for paying off credit card debt. With a snowball, debts are paid starting with the lowest balance first, helping you knock out small debt quickly. With an avalanche, the debt with the highest interest rate is paid first, which saves you money in the long run.

Should I Include Charged

If you get and decide to enroll in a debt management plan to pay off your debt, you have the option of including charged-off accounts.

However, be aware that a debt management plan will always pay off balances in full. So, if you have charged-off accounts and collections, you can include them but youll pay back everything.

You will also typically lose one of the main benefits of enrolling in a debt management program with these types of accounts. Most creditors do not charge interest once accounts are charged-off. Thus, theres nothing for a credit counseling team to negotiate for you. They cant reduce or eliminate interest when no interest is being charged in the first place.

The good news is that there is no rule that you must include every account you have in a debt management plan. You can decide to leave charge-offs and collections out and only use the program for debts that are current or behind. Then you can settle the charge offs and collections separately.

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Debt Snowball Vs Avalanche

It could be that your higher balance card also happens to be the one with the lower interest rate, to which we say, lucky you! In some cases, there might not be that much of a difference between the avalanche and snowball method. Use a free debt avalanche/snowball calculator to see if there is a big discrepancy between these payment strategies and decide which one is right for you.

What If You Ignore A Charge

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Even though your original creditor has taken a tax write-off and closed your account, you still owe the debt. If you completely ignore the charge-off, the creditor or a collector that purchases the debt and potentially get a judgment to garnish your wages or pursue other legal actions.

If possible and you have the means to pay at least something, then it may be in your best interest to avoid the risk of getting taken to court.

Work with a debt relief specialist to find the best way to deal with your debt.

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You Could End Up With More Debt

One of the biggest risks with using a personal loan for debt consolidation is the temptation to use your cards for more spending. If you use a personal loan to pay off credit card balances, then run those balances up again all you’ve done is added to your debt pile. And you may hurt your credit score in the process if your credit utilization increases.

Consolidate Your Debt Into Lower Interest Rate Payments

A good idea might be to consolidate your debt into one monthly payment by transferring the balances from your different credit cards to a new single credit card that has a 0% or very low introductory interest rate.

These lower interest rates will help you reduce the amount of interest you are paying back BUT debt consolidation this only makes sense if you can pay off your debt within the time frame of the low introductory rate.

Be sure to read the fine print very carefully so you understand any fees associated with the balance transfer. You also want to make sure you have a good sense of how the interest works.

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Grow Your Emergency Fund

If youre one of the many Americans who dont have significant savings, overusing credit cards is an easy trap to fall intoespecially if its not possible to borrow from friends or family or cut back on spending.

You have to build your savings first before concentrating on debt, says Steve Repak, a certified financial planner and the author of 6 Week Money Challenge.

He suggests building your short-term savings to at least $500 while making only the minimum payments on your existing credit cards before you start concentrating on your debts. That way, you can tap your savings instead of swiping your credit card if you have an unexpected expense.

For consumers that have debt and their income isnt high enough to save anything, they either have to reduce expenditures or increase their income, and the best-case scenario would to do both, Repak says. Supplementing your living expenses using credit cards cannot be a solution.

  • Who this strategy is good for: Anyone lacking a significant emergency fund.

Personal Loan Vs Credit Card Debt: Whats The Difference

How I Paid Off My Credit Card Debt

Personal loans and credit cards represent two different types of credit. So what is a personal loan?

A personal loan is a lump sum of money you borrow and then repay, with interest. Personal loans can be secured, meaning they require collateral, or unsecured. Generally, if you’re talking about getting a personal loan to pay off credit card balances, you’re talking about an unsecured loan.

A personal loan is a type of installment debt. You pay the balance down but you can’t add to it. A credit card, on the other hand, is a form of revolving credit or open-ended credit. You can borrow up to your credit limit by making purchases and as you pay them back, you free up available credit for use.

Apersonal loan is different from a personal line of credit, which is also a type of revolving credit similar to a credit card.

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Cut Down On Your Grocery Spending

Saving a few dollars off your grocery bill can go towards your debt repayment. Do you really need all those ice cream flavors? Before you hit up the grocery shop, make sure you have a list and a full stomach, this way you don’t get sidetracked by buying what you don’t need or by wanting to buy something to eat right away while you are there.

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