Close Accounts On Debts You Have Paid Off
Once a debt is paid, consider closing that account. Only keep what you need and can manage responsibly. However, you should keep an older account open as your credit score is based partially on how long you have had credit, also known as your credit history. Closing all of your older credit accounts can make your credit history seem shorter than it actually is and can hurt your credit score.
You may also want to consider using a secured credit card instead of a regular credit card. A secured credit card requires you to leave a deposit with the credit card issuer as a guarantee and you can only spend to that limit.
Negotiate Lower Interest Rates
This is easy to do and it could save you hundreds or even thousands of dollars in interest over time. All you have to do is call up your credit provider and ask.
The 20-minutes it takes could save you thousands of dollars.
The worst that can happen is they say no.
Check this great post from TheSimpleDollar for tips on how to negotiate a lower interest rate.
Improve Your Financial Self
Although no one wants to hear that they are not financially disciplined, if you are spending a large portion of your income on luxuries or items that may be put off and are having trouble paying your monthly credit card payments, you need to focus on your financial habits. As previously said, the key to financial discipline is having control over your spending impulse. Reduce the number of credit cards you have if it is too difficult for you.
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Do Your Creditors Get Paid
In the example above, the collection agency agrees to stop collection on this debt for over $15,000, but rest assured the original creditor was paid back in full.
First off, the original creditor will write off the debt showing it as a loss, reimbursing 100% of the money through tax credits.
Secondly, the original creditor profits by selling the credit card account to a collection agency. More profit!
Thirdly, credit card companies can get reimbursed through banking insurance. Like how people have car insurance, banks have banking insurance.
And fourthly, consider all of the late fees and interest that accrue after the borrower stops paying on a credit card, artificially inflating the balance even more, and banks will eventually write all of it off. So, in the end, banks may get paid back more than three times what was owed on the original credit card balance.
Since banks are reimbursed all of the money owed on an unpaid credit card balance and sometimes more explained, they get careless when selling delinquent credit card accounts to collection agencies. In summary, paperwork goes missing, and information turns inaccurate.
Consequently, consumers benefit by using debt validation and consumer protection laws to dispute a debt.
Shop Around For A Consolidation Loan
Be aware that some companies may offer consolidation loans with interest rates that are higher than the debts you are trying to consolidate. Make sure to shop around when youâre trying to consolidate your debt.
Different financial institutions may offer you different interest rates depending on the type of product you choose. For example, you may pay less interest on a line of credit than on a consolidation loan.
If you shop around for a consolidation loan, make sure you do so within a period of two weeks, so that it doesn’t affect your credit score.
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Repay The Debt With The Highest Interest Rate First
This strategy focuses on reducing interest charges so that youll end up paying the least amount of interest over the long term.
With high credit card interest rates, this could represent significant savings and the interest saved could be used to repay the rest of your debt sooner.
Prioritise paying off the account with the highest interest rate first by allocating all available resources to it. Once youve paid that account off, close it to avoid further charges and move on to the account with the next highest interest rate.
Ask The Expert: Whats The Secret To Getting Out Of Debt
Question: My husband and I have been just breaking even for some time now, trying to dig ourselves out of debt and save money. Weve cut everything to the minimum and constantly tell our kids to do without. I cant even afford for them to go to a friends birthday party or participate in a school event.
I feel like such a failure because I cant do more for my kids. My husband and I seem to be fighting more about money these days. What is the secret to getting out of debt?
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Get Rid Of Credit Card Debt
How to get rid of credit card debt is a big problem for many people. You can dig yourself into a real hole if you have a high balance and you only pay the minimum. After one week count how many credit card offers you have in your mailbox. Probably too many.
This is how the banks operate, they lure you in with enticing offers that you think are a great deal. Except one day you check your credit card balance and youve accumulated debt upto your eyebrows.
Here are some suggestions on how to get out of credit card debt.
First you need to assess what your credit card debt looks like. What is the balance and how many cards do you have with a balance.
Take a look at what interest rates you are being charged for each card you have and put them in order of highest interest first, then second highest and so on. Its best to pay off the card with the highest interest rate first with at least 2-3-4-5-6 times the minimum payment. If you can pay more do it.
You will see your finance charges starting to get reduced much faster than just paying the minimum. It can sometimes feel like a daunting step but know that if you keep to your credit card payment plan you will soon see light at the end of the tunnel.
Celebrate the difference and continue on! You will soon be seeing credit card debt relief and the lower your credit card balance goes the better off you will be.
Solution : Credit Card Debt Consolidation
If the minimum payment requirements for your credit card debts are too high, consolidate!
Debt consolidation loans often lower your monthly payments. However, since it also reduces your interest rates, you can get out of debt faster even though you pay less.
If you use a debt consolidation loan, then the term you choose determines the monthly payment requirement. Choosing a longer term will lower the monthly payment.
Most lenders will let you go up to a 48- or 60-month term on a consolidation loan. This can significantly cut your monthly payment requirements.
Ideal for: Up to $25,000 in credit card debt
If your total monthly credit card payments are too high prior to consolidation, you may need to opt for a personal loan with a longer term.
In this case, a 3 or 4-year term may be the best solution to give you lower monthly payments, while still allowing you to get out of debt faster. Its also worth noting that this is only the best solution if you have good credit .
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The Downsides Of Bankruptcy:
- Your credit score can get lowered by 175 points.
- Next to each creditor that gets discharged will say, debt discharged due to bankruptcy.
- Potential employers, landlords, and creditors will all be able to see that you filed for bankruptcy.
- Premiums on car insurance, cell phone, and monthly insurance payments can all legally increase once bankruptcy goes on a persons credit report.
- Chapter 7 bankruptcy can stay on your credit report for 10-years
Heres a bankruptcy guide to help you learn more about bankruptcy if this is an option youre seriously considering.
About the author:
Paul J Paquin is the CEO of Golden Financial Services, a national debt relief company specializing in helping consumers achieve financial freedom and . Paul integrates his experiences and insights from Golden Financial Services into his writing, sharing solutions to Americans everyday financial challenges. Pauls passionate about empowering consumers with the knowledge needed to improve their finances and take control of debt. Hes created numerous guides on debt-related subjects a few of the most popular include A Guide to Understanding Unsecured vs. Secured Debt and The Ultimate Guide on How to Get Student Loan Forgiveness.
Slash Your Monthly Expenses
Another way to pay your debt off faster is to start living more frugally. Cut costs in every area you can. Start finding free stuff to do for entertainment.
Learn to save money on groceries. Cancel unnecessary subscriptions and memberships like cable TV and gym memberships.
Look through every line item on your budget and get rid of the expenses you dont absolutely need. Then take all of the money you save and put it toward credit card debt.
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Possible Reasons For Why A Debt Could Become Invalidated
- Unauthorized fees get added in, making it impossible for a collection agency to prove the debt is valid.
- The collection agency may not produce a valid debt collectors license for a particular state.
- Paperwork gets lost or missing documentation, like a collection agency may not produce the original agreement signed when the consumer first applied for the credit card.
- Incomplete records get transferred from the original creditor to the collection agency.
- The statute of limitations on a debt may have expired, or collection agencies cant supply accurate information about when the statute of limitations is set to expire. Remember, for an account to be valid, it must be legally verifiable with complete and accurate records after being requested.
- To expand on this last point, a collection agency may not be able to produce accurate information about the date the statute of limitations on a credit card account expires, the full account number on a credit card when it was with the original creditor, the date the credit card account was sold to a third-party collection agency, the debtors personal information including date of birth, mailing address and social, and much more.
Heres A Simple Script That You Can Use To Negotiate With Your Creditor
Hello ____, how are you today? Ive been a loyal client for ___ years now and have always paid my bills on time, so I hope you can help me today so that I can keep my credit card account open with your bank. Your hands may be tied, and you may not have any power to help me here, but I figured Id try to openly communicate with you about this matter before just closing my card. I want to stay with your bank as you guys have always been good to me. Anyway, heres my situation _______ bank offered me a ___% interest rate on a similar card with 3% cashback included. Since this interest rate is ___% less than what your card is offering me, Ive decided to close this card out and switch to the new card that ____ bank is offering me. Unless, of course, you can reduce my interest rate or upgrade my card to match what _____ bank is offering and offer me some similar cashback. What do you have the power to offer me today to help me out? Then go silent.
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Refinance Your Mortgageconsolidate Your Debt With Home Equity
If you own your home, you may have enough equity to consolidate all your debts into your mortgage. If you dont have much equity in your home, additional mortgage insurance costs could be expensive. Consider your options and seek advice from someone other than your lender .
Just like with a debt consolidation loan, when you consolidate debts into your mortgage, you also need to create a budget. If you dont, youll always be tempted to borrow more when emergencies happen.
Repeatedly using your home as an ATM can set you up to face retirement with a lot of debt, no assets, and no savings.
If normal banks and credit unions arent able to help you with refinancing your mortgage, dont immediately turn to a home equity lender. Instead, speak with one of our credit counsellors.
Simple Ways To Get Out Of Credit Card Debt Faster
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Almost half of Americans who have credit cards dont pay off their balance in full each month, according to a new NerdWallet survey. And over the past five years, carrying a balance has gotten significantly more expensive, with the average credit card interest rate rising 35% since 2014, from 12.74% to 17.14%.
Even with the recent rate cut by the Federal Reserve, credit card interest rates remain near post-recession highs. Paying your balance in full avoids interest entirely, but not everyone is in a position to do that.
For Americans with credit cards, 77% surveyed said they have paid interest at some point. The next best thing is minimizing the interest you pay, leaving you more money to pay down your debt more quickly. Here are five easy things you can do to cut your interest costs and get out of debt faster.
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The Debt Snowball Method
With the debt snowball method, youll focus on paying off your smallest credit card balance first, then youll work your way up to your larger balances.
Follow the steps:
Step 1: Continue to make the minimum payments on all your credit cards.
Step 2: Use your extra money towards the credit card with the smallest balance.
Step 3: When the credit card with the smallest debt is paid off, move on to the card with the next smallest debt.
Step 4: Continue this process until all your debts are paid off.
The snowball method can be a good option for those who have several small credit card debts to pay off. This method lets you see progress faster, but you may end up paying more overall since youre not considering your cards interest rates.
If you have money saved away for a rainy day, you may want to consider using some of your savings to help pay down your credit card debt. If your interest debt is higher than the amount of interest youre earning in savings, youre better off using some of your savings to lower your debt because carrying a high interest on a high balance will cost you more.
Carrying credit card debt can negatively impact your financial future. Paying it down means youll save on interest, improve your credit score and have more money available to put away for emergencies or an important savings goal.
How To Get Out Of Credit Card Debt
These strategies will help you pay your debt quickly and easily.
Cynthia Paez Bowman
Cynthia Paez Bowman is a finance, real estate and international business journalist. Besides Bankrate.com, her work has been featured in Business Jet Traveler, MSN, CheatSheet.com, Freshome.com and SimpleDollar.com. She owns and operates a small digital marketing and public relations firm that works with select startups and women-owned businesses to provide growth and visibility. Cynthia splits her time between Los Angeles, CA and San Sebastian, Spain. She travels to Africa and the Middle East regularly to consult with women’s NGOs about small business development.
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How To Tell If You Have Too Much Credit Card Debt
Different theories exist when it comes to how much debt you should have. Several large balances on multiple credit cards could indicate trouble on the horizon. On the other hand, high balances might be manageable if you also have high income and credit limits although high balances come with higher interest costs.
You can use a couple metrics to figure out if you have too much debt, no matter your income or number of debts: your credit utilization ratio and debt-to-income ratio.
For Credit Scores Of 690 Or Higher
A balance transfer credit card: When other issuers wouldnt offer budget-friendly terms, Zook transferred debt from high-interest credit cards to low-interest credit cards. Like Zook, you may have to pay the 3% to 5% balance transfer fee generally charged by most cards, but it could be worth the short-term cost to get a long-term break on interest payments. The ideal balance transfer credit card has a $0 annual fee and a lengthy introductory 0% APR. You might even be able to find one that charges no balance transfer fees within a certain time frame.
Debt consolidation loans for multiple credit cards: If your debt is spread across multiple credit cards, it might be easier to explore a debt consolidation loan. It allows you to combine high-interest debts into one low-interest fixed payment, making it much easier to manage.
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Know Your Credit Score
Knowing your credit score is important for a lot of reasons, but right now all we care about is getting rid of your credit card debt.
So why is it important to know your credit score?
Well, it’s going to help you with the next steps.
You may already have a way to check your credit score, but if not, try these free options: