Make Your Debt Less Expensive With A Balance Transfer
Imagine you owe $2,500 on a credit card with a 24% interest rate, and another $2,500 on a card that charges 20% interest. Well, what if you could knock your interest rate down to 15% across the board? With a balance transfer, that may be possible.
As the name implies, with a balance transfer, you move your existing balances onto a new credit card with a lower interest rate, which makes your debt more affordable to pay off. In fact, balance transfer cards often come with a 0% introductory period, so it pays to see if you qualify for one of these cards. That said, some balance transfer cards charge a fee to move your debt over, so be sure to read the fine print and make sure that transfer is worthwhile.
Transfer Your Balance To A 0% Credit Card
If you have good credit generally a credit score of 690 or higher you may be able to transfer your balance to a credit card with a 0% introductory rate that lasts 12 to 18 months. With no interest to worry about, you can focus on whittling down the core debt as fast as possible.
In general, you cant transfer debt among cards from the same issuer for example, you cant transfer a Chase balance to another Chase card. Most cards charge a fee of 3% to 5% of the amount transferred, although a few cards don’t charge a fee for balances moved within a certain time frame.
If you choose this route, make a plan to pay off your full balance before the introductory period ends to avoid accruing interest charges.
About the author:Erin is a credit cards expert and studies writer at NerdWallet. Her work has been featured by USA Today, U.S. News and MarketWatch.Read more
Check If A Dmp Is Right For You
If youre thinking about getting a DMP its important to know:
- it doesnt usually include priority debts so might not help you if youre struggling with your rent or council tax, for example
- it can take a long time to pay off your debts if youre only making small payments
- your creditors dont have to agree to the plan and they can stop accepting it or ask for more money at any time – it isnt a legal agreement
- your creditors can still contact you about the debts you owe
- it could make it harder for you to borrow money in the future – check how a DMP might affect your credit rating
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Hire A Professional To Help
Youll have to pay for these professional debt management programs, but theyre likely to lead to more savings than you could negotiate on your own.
Debt Management Plan
Another way to help get out of credit card debt is to get yourself involved in a Debt Management Plan, or DMP.
This is a program created for you by a to lower the interest rate on credit card debt and create an affordable monthly payment that reduces the debt in three to five years.
Debt management plans are usually offered by nonprofit credit counseling agencies, though there is a small monthly fee involved, usually ranging from $25 to $50 per month. A certified credit counselor will analyze your personal financial situation and develop and implement a plan just for you. The advice is usually free. You wont need to pay until you agree to a plan.
Debt Settlement
Debt settlement companies negotiate settlements with a debtors unsecured creditors. Creditors agree to forgive a large part of the debt, maybe around half, though results can vary. When the settlements are finalized, make sure you get the terms in writing. Not all debt settlement companies are reputable.
Considering debt settlement? Check out our top recommendations.
Make A List Of All Your Credit Card Debts
Its human nature to avoid things that you dont want to face. But you know that ignoring $30,000 in credit card debt isnt going to make it disappear. The first step to conquering the debt monster is to face up to it so you can plan how to deal with it. Breaking it down into its parts will put you in control and make it less overwhelming.
You already know minimum payments arent making a dent. A consumer with $30,000 in credit card debt who makes a minimum payment of interest-plus-1%-of-balance will pay $700 a month. While that seems like a lot of money, it goes almost nowhere as far as paying off the balance.
The average credit card interest rate in 2021 was 16.13%. With 16% interest, it would take 447 months to pay off $30,000 in credit card debt. The final bill would be $69,459.47. Keep in mind thats 16% interest. With that much debt, your cards probably have higher interest rates as much as 30% or more. And, of course, thats if you didnt accumulate more credit debt in those 37 years.
To get a realistic view of what you will owe making minimum payments, check out your card statement. The information on how long it will take to pay off the card and what you will ultimately pay is there, required by federal law. You can also find credit card calculators online that will give you the same information.
One day they sat down to do the math, looked at each other and said, We cant keep doing this.
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Start A Side Hustle To Throw More Money At Your Debt
I know, work away from work. But its not forever.
If you have the time and can manage a second job, youll be able to throw extra money at your debt. Plus, some ways to make money can actually be fun. Combine this with any debt repayment strategy and youll be a force to be reckoned with.
Any part-time job can help, whether its delivering pizzas or walking dogs with Rover. No job should be beneath you if you really want to pay off this debt.
You can start small with survey sites like Survey Junkie , then throw your earnings at your debt. This obviously wont bring in a ton of extra funds, but every little bit helps.
With Uber Eats you can deliver food across town whenever and wherever it works for you and get paid. Just download the app and upload your documents once youre notified that youre active, you can start earning!
Balance Transfer Credit Cards
If you’re a consumer with good credit seeking to save the most money on interest and if you have the discipline to pay down debt in time a balance transfer may be the way to go. Through a balance transfer, you can move your balances onto one card that offers 0% interest on transfers for a limited time, typically from six months to up to 21 months. This allows you to avoid paying interest and focus on eliminating the principal balance.
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Pay More Than The Minimum
A general way to get out of credit card debt is to pay more than the minimum for your card each month. Otherwise, it could take years to get rid of a balance. For example, paying the monthly minimum of a $5,000 balance at 17% APR can take ten years and cost a total of $10,000.
In addition, carrying high balances could significantly affect your since credit utilization weighs heavily. Carma Peters, CEO of Michigan Legacy Credit Union, says, “The largest negative impact on your credit score is keeping a balance that exceeds more than 50% of your limit.” The sooner you pay down your balance, the faster you can rebuild your credit.
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.
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Be Careful With Cash Advances Before Filing
Cash advances on your credit card can also be a negative factor when you file for bankruptcy. The debt is not discharged if you take out over $950 in cash advances 70 days prior to filing for bankruptcy. This stands regardless if you use that advance for essentials or luxury purchases.
There is an exception for the cash advance penalty. For example, lets say you took out a cash advance to repay student loans. You then get diagnosed with a severe medical condition that renders you unable to work, so you file for bankruptcy. Because you are unable to repay this debt due to extreme hardship, it will be discharged. Note that if you took out the cash advance to pay your student loans intending to discharge the debt in bankruptcy, you can be sued for nondischargeability.
Connect with top-rated bankruptcy attorneys to make sure you avoid issues when you file.
However, if you can prove that the recent purchases are necessary items, such as heat for your home and medical expenses, those may qualify for discharge.
How To Pay Off Large Amounts Of Credit Card Debt
Are you someone who has maxed out your credit cards to the point where you cant charge anymore? Do you have other debts that youve accrued such as a massive student loan and/or medical bills that have piled up?
If you are experiencing any of these debts there are ways you can pay off large amounts of credit card debt and relieve stress.
Keep in mind that such debts especially on a credit card can be very expensive as credit card interest rates are high and add up quickly. One main way of staying out of debt is to make sure to get your credit card payments under control before your debt is out of control.
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Whats The Trick To Paying Off A Credit Card Quickly
We already mentioned the quickest way to pay off credit card debt is the debt snowball method. And this is how you do it:
Step 1: List your credit card debt from smallest to largest. Pay minimum payments on everything but the smallest one.
Step 2: Use all the extra money youve got from those earlier tips and attack the smallest credit card debt with a vengeance. Once that debt is gone, take what you were paying on it and apply it to the second-smallest debt .
Step 3: Once that credit card debt is gone, take what you were paying on it and apply it to the next-smallest debt. The more you pay off, the more your freed-up money grows and gets thrown onto the next debtlike a snowball rolling downhill. Its unstoppable. Youre unstoppable. That credit card debt doesnt stand a chance.
Keep repeating those steps until the debt is completely gone. And dont forget to close your credit card accounts after you pay them off. Then go ahead and dance like nobodys watching, even if they are. You did it!
Okayso all of this takes effort, sacrifice, focus and time. What if you could speed it up even more? Learn the plan to do just that in Financial Peace Universityavailable only in Ramsey+. The average household pays off $5,300 in the first 90 days of working this plan. Imagine your life 90 days from now with at least $5,300 of your credit card debt gone. Forever. Check it out in a Ramsey+ free trial!
Dont. Give. Up.
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Figure Out Your Total Debt Balance
Once she forced herself to stop turning a blind eye toward her spending and credit card accounts, Hudak says facing the debt was the hardest part. Based on her own experience, Hudak recommends that you start by looking at all of your balances to see how much you owe in total.
Identifying what got you into debt in the first place can help you pin down what lifestyle changes to make so you dont repeat the mistake in the future. Ignoring your balances and continuing the spending habits that led to credit card debt will only exacerbate a cycle of debt and overspending.
Once Hudak forced herself to start paying down her credit card debt, she made a spreadsheet listing all of her outstanding balances, due dates, and interest rates including $209,000 in student loans, and another $10,000 loan that she forgot about. That was in addition to the $20,000 in credit card debt spread across four credit cards. At the start of her journey, three of Hudaks credit cards totaled an estimated $9,000, and another card had an $11,000 balance with a nearly 27% interest rate.
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No matter the amount, theres nothing quite like the weight that debt bears.
It can be downright exhausting.
I know the feeling. Just four years ago, my wife and I set out to figure out how to pay off debt nearly $30K’s worth within the 16 months leading up to our wedding.
The good news was that we werent alone in wanting to become debt-free and neither are you.
Thankfully, what worked for us has worked for others trying to get out of debt as well. Heres a roadmap of steps you can take to make it work for you, too.
Quick Summary
What Did It Feel Like To Have That Much Debt
It was suffocating.
A big part of why a disproportionate amount of my debt comes from my freshman year was because I was preparing for circumstances and expenses that never came to be.
My first year of college was the first time and the last time since I was really young that I wasnt going to work. Even as a kid I sold Kool-Aide during yard sale season, I mowed neighbors yards every week, and I would pick up odd jobs where ever I could.
In high school I always had at least one part-time job. It was pretty typical for me however, to work several different jobs in a single week. Id been used to making money and paying my way for wrestling camps and tournaments along with anything I wanted to do with my friends.
As I was getting ready to attend college however, I was warned of the big leap Id being making in course work and training as a student athlete.
To make sure I didnt fall behind in my studies or in wrestling, I made the decision not to work while I was in college. This decision relied on borrowing money for tuition as well as living expenses.
That plan didnt pan out the way I expected. In part because I over compensated.
Knowing Id have to pay for a lot of the things Id been paying for while in high school in addition to expenses I didnt have much experience with groceries and other true living expenses I guessed at how much Id need to live on.
Ultimately, I guessed high and borrowed more money than I really needed to cover those expenses.
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Review Your Finances Regularly And Set Goals
Once you’re out of debt or on your way to being credit card debt-free, it’s important to establish healthy financial habits to keep you from slipping. Sticking to your budget will be vital. You may want to do an annual review of your spending and make budget adjustments. In addition, prepare for unexpected expenses by putting money into an emergency savings account. Lastly, set goals and stick to them. Saving a down payment for a house or establishing a retirement fund is a great way to keep your eye on the prize and your spending in check.
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It Takes Time And Determination To Conquer A Mountain Of Debt
But if youre equipped with the right knowledge and tools, the journey to conquering that mountain can be relatively smooth. Plus, you dont have to tackle that mountain of debt alone credit counselors are available to help.
Of course, no two attempts to conquer debt are the same a debt reduction plan that works for one person may not work for another. And unless you stick to your plan, youll likely have a tough time chipping away at your debt.
If youre not sure how to tackle your credit card debt, weve got some advice on steps you can take. While this advice wont guarantee success, it can help point you in the right direction.
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