Paying More Than The Minimum
Paying more than the monthly minimum helps accelerate your debt payoff and is a more active approach.
When you pay more than the minimum each month, you are chipping away a larger chunk of your debt and thus shortening the amount of time it will take to pay off.
Unlike just focusing on one credit card balance, paying more than the minimum is harder to do if you are juggling multiple credit cards with revolving balances. For this scenario, we recommend the popular ‘snowball’ or ‘avalanche’ debt repayment methods. We outline each below:
When deciding what method works best, there is no right or wrong answer. Choose the method that motivates you the most: seeing results quickly by paying off low credit card balances or saving money by paying down high-interest debt.
Paying The Card Bill With The Least Balance
Once you pay off the credit card bill with the higher interest rate, you can switch to the card with the least balance pending.
This completely depends on what bills have accumulated and on which card. It might not always be this way. Sometimes, the bill which is the lowest might be with the card which has the highest balance. In that way, you are clearing off two important bills.
Once you are done with clearing the credit card with the highest interest, you can shift to the bill which has the least pending balance. Paying this provides you with a much-needed mental boost of clearing the rest of the bills.
There Isnt One Right Way To Pay Off Credit Card Debt But There Are Some Tried
Those methods fall into two broad categories either pay off each debt individually or consolidate all of your debts into a single monthly payment.
Lets take a look at four popular strategies for paying down credit card debt, along with the pros and cons of each, to help you decide which option is best for you.
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Negotiate With Your Creditors
Most people accept the interest rate that their credit card company sets without giving it a second thought. But you might be surprised to learn that you may be able to negotiate that interest rate down. While you wont always succeed, it never hurts to ask, and if youve been a long-term customer with a solid payment history, your odds might increase. Knocking even a few percentage points off your interest rate could result in significant savings.
In the worst-case scenario in which you simply cant pay your cards, you may be able to reach some type of negotiated settlement with your creditors. This will damage your credit score but may be a way to reduce your overall debt and set up a reasonable long-term payment plan.
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Make At Least The Minimum Payment
Make at least the minimum payment if you cant pay off your balance in full. The minimum payment is the minimum amount you have to pay each month on your credit card balance.
You minimum payment will be either:
- a flat dollar amount, usually $10, plus any interest and fees
- the higher of a dollar amount, typically $10, or a percentage of your outstanding balance, typically 3%
Your credit agreement will tell you which method your credit card issuer will use to calculate your minimum payment.
Paying only the minimum amount you owe means:
- it will take you longer to pay off your credit card balance
- you’ll pay more interest
Increasing your monthly payment by even a small amount will shorten the time it will take you to pay off your balance by a lot.
Switch To A Cheaper Mortgage
Mortgages are secured debt. This means when you take out the loan to buy your home, you offer your property as security.
As a form of debt, theyre also much more of a long-term commitment. That doesnt mean you need to stick with the same provider for the duration of the mortgage. In fact, if youre coming to the end of a fixed-term deal or youre unhappy with the standard variable rate youre paying then remortgaging could be a good way to lower your monthly repayments.
Find out more: remortgaging: how to save thousands on your mortgage
How Debt Affects Your Credit Scores
The first thing you should understand is that debt has a ripple effect across your entire financial life, including your .
In this article well discuss two types of debt revolving and installment.
Revolving debt primarily comes from credit cards where you can carry, or revolve, a balance from month to month. You can borrow as much money as youd like up to a predetermined and interest rates are subject to change. Your monthly payment may vary on revolving debt depending upon how much you currently owe.
Installment debt comes from mortgages, car loans, student loans, and personal loans. In most cases, the amount of money you borrow, the interest rate, and the size of your monthly payments are fixed at the start.
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 a mistake that can stay on your for seven years. You may also have to pay late fees, which wont impact your credit scores, but can be burdensome nonetheless.
Aside from your payment history, the way each type of debt affects your credit is quite different. With installment debt, like student loans and mortgages, having a high balance doesnt have a big impact on your credit.
But revolving debt is another matter. If you carry high balances compared to your credit limits on your credit cards from month to month, it will likely have a negative effect on your credit scores especially if youre doing it with multiple cards.
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Decide On A Debt Repayment Strategy
Put a plan in place to pay off your debt faster by considering a debt repayment strategy. It makes the most mathematical sense to pay off your debts with the highest interest rates first. But some people feel motivated to keep going when they tackle their smallest debts first. Others find it easier to pay their debts at once, which they can do with a debt consolidation loan.
Things you should know
This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Some terms and conditions apply to our financial wellbeing features please see commbank.com.au for details.
She Paid Off The 0% Balance Within The Promotional Apr Period
Originally, Lana planned to pay off her credit card debt in 12 to 15 months. But once she saw her debt going down, she was inspired to pay it off even faster by making further cuts to her budget. She even found a side hustle to make a little extra “bonus money,” as she says. And when her tax return arrived, she decided to use it all to tackle her debt even faster.
In March 2019, just a few days before her birthday, Lana reached her goal of being credit card debt-free.
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How I Got Into Credit Card Debt In The First Place
There are lots of things Im terrible at, but Ive always been good with my money. I manage my budget closely, and make sure to have financial goals to strive for.
So when I found myself with a large amount of credit card debt, I was beyond frustrated.
My dad and I ran a family business for nearly 10 years. Unfortunately, it came time to shut the business down, and my dad and I both found ourselves suddenly unemployed.
And because we had spent the final months of our little business trying so hard to save it, we also had no money.
All I had was my credit card.
Over many years of handling my finances well, I had built up a good credit rating, and therefore had earned a large credit card limit.
With no job and no money, I had to do something to cover my ongoing monthly expenses. My credit card was all I had.
So, while I hunted for new employment, I lived off my credit card. Im sure you can see now how that debt added up quickly.
It took me nearly 6 months to find a new job, believe it or not. When I finally I did, I had a nice big credit card balance greeting my on monthly statement.
At an interest rate of 19%, my monthly interest payments alone were around $300.
How was I going to get out of this?
Financial Freedom For All
Anyone can achieve financial freedom, regardless of their financial circumstance.
Use the tips provided above to get yourself on the track to financial freedom and toss your monetary concerns out the window. If you wish to achieve a life with financial freedom for yourself and your family then you must adopt a disciplined approach towards your finances.
Following the simple secrets above is a great start to making your money work for you, so you can work less and live more!
Featured photo credit: rawpixel via unsplash.com
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Rent Out A Room With Airbnb
Members who live near popular tourist destinations or live in a city with lots of business travelers are putting their extra bedrooms, garages, granny units, and converted sheds to work for them. There are many ways to earn extra income by renting out your space on Airbnb, Homeaway, VRBO, Flipkey, or other alternative travel accommodation sites. If youre organized, have a desirable space, and enjoy meeting new people, you may be able to earn a significant monthly income.
Some money-wise members are even renting out their apartments and homes while theyre on vacation or visiting friends and family out of town. Either way, the money you make while youre away can help you avoid accumulating more debt or pay it down quicker.
How Do I Pay Off Debt With Debt Settlement
Debt settlement is another option you can consider when youre ready to eliminate your credit card debt. This strategy usually works best for people who are already past-due on their credit card payments and can afford to make large, one-time settlement payments to their creditors.
You can settle debts on your own or you can hire a professional debt settlement company to handle the process for you. If you choose to hire an outside party, you should do extensive research to avoid scammers and exorbitant fees. Be aware that hiring a company to do this is not necessary, and could end up costing you a lot more money. Learn what to watch out for at the FTC Consumer Information website.
- Step 1: Examine your debts, and determine your ability to repay them over time.
- Step 2: If you think your debts are insurmountable, and youve decided bankruptcy isnt the right response, you can either attempt debt settlement yourself or hire a company. The worse your situation the more leverage you might have, because your creditors will see that theyre less likely to be paid in full.
If you go the DIY route:
Or, if you prefer to work with a debt settlement company:
This option usually only becomes available after its become clear that youve been struggling to pay your bills, like if youve started to accrue late payments or havent been paying at all.
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Budget Wisely And Track Your Spending
If you dont already have a set budget that you follow, now might be the time to start. Make sure your budget includes any non-negotiables, such as rent, utilities, food, and loans first, as these categories take priority. Then you can determine how much money you can realistically spend on your credit card each month with respect to your discretionary categories.
When your budget is in place, use it to track your spending over the course of the month. You can either do this manually by taking stock of your spending every few days or perhaps once a week or by using a budgeting app.
Reevaluate the budget youve created for yourself in two months to make sure you accounted for all of your spending accurately. Then, going forward, make a habit of checking in with your accounts regularly.
Tips For Paying Off Credit Card Debt
Ready to learn the best ways to pay off your ? Its easy to feel stuck when youre struggling to make minimum payments and frustrated with how far your financial goals seem to be. However, no matter how bad you think your situation is, theres a way out that will work for you. Here are 10 practical ways you can quickly tackle your maxed out cards and take your first real steps towards getting out of debt.
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The Snowball Debt Repayment Method
The snowball method for paying off debt looks like this: list out each credit product you have, from lowest balance to highest. Make minimum payments on all products except for the one with the lowest balance as this is the one youll focus on. Lets say you have four credit products . Well call them A, B, C, and D. Take all of your extra money and put it onto product A, while making minimum payments on products B, C, and D. Keep this going until you have paid off product A. Then take all of the money you were putting on product A and now put it onto product B while making minimum payments on products C and D. When B is paid off, move everything over to C until its paid off. And finally, put everything youve got available on product D until its paid off.
A Debt Consolidation Loana Balance Transfer Could Also Be A Good Option
When used correctly*, debt consolidation loans and balance transfers are excellent ways to get out of debt.
Consider consolidating your debts with a consolidation loan or transferring your credit card balances to a low rate credit card. However, make sure you understand the terms, conditions, any hidden fees, and the overall interest savings you should get before signing anything.
Cut up and cancel your credit cards if you choose this option. If you dont, you might be tempted to continue using them and further increase your debt load and make your debt even worse than before.
*Unfortunately, debt consolidation loans dont help most people. When people get these loans but dont change the habits that got them into debt in the first place, they just dig themselves deeper into debt. To get ahead using a debt consolidation loan, make sure you track your spending for at least 2 weeks. You also need to create a budget and follow it so that youre not spending more than you earn. Dont become someone who needs another debt consolidation loan to pay off your first one.
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How To Pay Off Credit Cards As Quickly As Possible
If youre looking for how to pay off credit cards on your own and get out of debt, youve made a great choice! Heres a quick, down and dirty run through of two credit card payoff strategies to help pay off debt as quickly as possible. But before we get into that, you need to make a few decisions about your credit cards if you want to pay them off.
Using A Personal Loan Or Balance Transfer Credit Card
As you seek debt repayment options, you could consider a personal loan or balance transfer credit card with a lower interest rate than on your existing debt. Transferring your debt to one of these financial products could help you reduce long-term interest costs.
But youll first need to learn whether or not youre eligible. Your credit score will play a big role in determining your eligibility for a personal loan or balance transfer card. Use our to figure out if a personal loan or a balance transfer is the best option for you.
If you have a credit score above 640, you have a good chance of qualifying for a personal loan that may have a much lower interest rate than your credit cards. With new internet-only personal loan companies, you can shop for loans without hurting your score. In just a few minutes, with a simple online form, you can get matched with multiple lenders. People with excellent credit could see personal loan APRs below 10%. But even if your credit isnt perfect, you might be able to find a good loan that fits your needs.
Not sure what your credit score is? Learn how and where to get yours for free. If you know your credit score needs some work, but are not sure of how to get those numbers up, we outline some simple steps you can take that can help.
Now lets talk about how a personal loan or balance transfer card can help you dig out of debt.
Lets say you have $10,000 in credit card debt, and are stuck paying 18% interest on it.
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