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How To Manage High Credit Card Debt

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How To Manage Credit Card Points And Debt

Saving money is another way to manage credit card debt more wisely. If saving sounds hard, consider starting with some proven strategies for saving money quickly, such as:

  • Setting up a budget
  • Negotiating better deals for ongoing services and subscriptions
  • Creating a side hustle
  • Automating your savings with direct deposit and automatic transfers

Once you free up some cash, you can put that extra money toward paying down your credit card balance.

How To Manage Debt Step By Step

Developing the right strategy to manage debt is essential if you want to avoid debt problems that will stress you and your budget. You need to have the right plan for paying off credit cards and loans, so you can keep debt minimized and save money. This guide will walk you through how to manage debt correctly, so you can work towards achieving financial stability.

What Is Credit Card Refinancing

Credit card refinancing comes in a variety of forms, but they are all ways to lower the interest rate on the high-interest credit card debt youve accumulated.

Some of the most common credit card refinancing and debt consolidation methods are balance transfer cards, a personal loan, home equity loan and borrowing from a retirement account.

Which option is right depends a lot on credit score, credit history, debt load and the individuals finances.

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Talk With Nonprofit Debt Counseling Company

Talk to a nonprofit debt counseling company about a debt management plan that allows you to pay your credit cards in full, but with a reduced interest rate, or with fees waived, or both. Because they know their mutual clients are being coached through difficult times with honorable intentions, credit card companies work hand-in-glove with credit counselors to offer you an affordable monthly payment that eliminates debt in 3-5 years.

Beware, most of all, debt settlement companies that claim they can eliminate some or all of your unsecured debt. These oftentimes are scammers who are playing chicken with your credit rating.

Work With Your Creditors

High credit card debt can affect wealth management plans ...

Reach out to your creditors to explain your situation. A credit card issuer may be willing to negotiate payment terms or offer a hardship program, especially if youre a longtime customer with a good track record of payments.

If your issuer offers a hardship program, it may provide relief when circumstances beyond your control like unemployment or illness impact your ability to manage payments. Whether you negotiate with your issuer or accept the terms of a hardship program, either option could lead to more affordable interest rates or waived fees, depending on the issuer.

These small changes might be just enough to help you get a handle on your debt, and the worst that can happen is they say no.

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Tip No 1: Dont Wait To Decide A Solution Isnt Working

If you try something and you see that its not working, dont wait to try something else. Remember, the longer you procrastinate and delay paying what you owe, the more money you waste on interest charges and the deeper you go into debt. Time is not on your side when you have debt to pay.

If you try and debt solution and it doesnt provide the benefits you need, dont wait try something else. If a balance transfer introductory period is about to end and you still have a balance, look at consolidation loans. By the same token, if you cant keep up with loan payments, dont wait for default to seek help.

Trim Your Expensesfree Up Some Cash To Pay Debt Faster

Speed up your debt repayment and get out of debt fast by reviewing your monthly expenses and looking for ways to cut your costs.

Start by tracking your spending for the next two weeks to find out where exactly your money is going . You might be surprised to learn that making your morning coffee instead of buying a $3 specialty drink will save you over $1,000 a year!

Check your spending to see if you can find more ways to save some money. Every little bit will help you get closer to a life free from credit card debt.

If youd like more ways to save on expenses, we have tons of ideas on our educational website, MyMoneyCoach.ca. Here are some great resources:

Struggling with credit card debt?

Get help from an expert.

Trying to pay off your credit card debt can feel overwhelming, but you dont have to do it alone. One of our professional credit counsellors would be happy to review your finances with you, work with you on making a solid budget for successfully repaying your debt, or work you on special debt repayment solutions if they fit your situation. Speaking with our certified counsellors is always free and confidential.

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Tip No 1: Never Turn To Alternative Financing Solutions

Alternative finance solutions refer to any nontraditional lending source its basically any no-credit-check loans, like payday loans. These financing options offer instant approval with no underwriting, so you can get approved even if you already have more debt than you can handle. The problem is that the finance charges are high usually $30 for every $100 financed. In addition, the interest rates can get extremely high, as in above 300%.

Although you may be tempted to use AFS if you cant get other financing, dont do it! Payday loans and other AFS options only make a bad situation with debt worse. They can seem like a good idea to fill a cash need quickly. However, when youre already struggling to make ends meet, theres little chance youll pay the loan back before those notoriously high finance charges and interest rates kick in.

Balance Transfer Credit Cards

Managing Your Credit Card Debt

Balance transfer credit cards may be useful to some people, but there are a few thing to consider when it comes to applying for one, such as credit worthiness, balance transfer fees, and more. Most credit card offers that include an ability to transfer existing credit card balances will also state their APR: so moving an existing balance from a high APR card to a new credit card with a lower APR may help reduce the amount of interest you will pay on the balance each month.

Balance transfer fees

If approved for a balance transfer, the bank or credit issuer may charge a balance transfer fee. Although these fees may vary, this fee typically amount to 3-5% of the balance you are requesting to transfer. You should take this fee into account when factoring in whether or not a balance transfer will help save you money in the long run.

Balance transfer credit cards with an introductory 0% APR

When you have a good credit score, you may be offered a 0% APR for any balance transfers to the new credit card during an introductory period. When you are proactively working to pay off your credit card bills, an introductory 0% APR credit card can be a great way to start your debt reduction.

Balance transfer credit cards with lower APRs

Even if a new credit card doesn’t offer 0% APR on balance transfers, moving an existing balance from a high-APR credit card to one that has a lower APR will reduce the amount of interest you pay every month.

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Pay As Much As You Can Each Month

If you can make higher repayments each month, you will pay off the debt faster and save money.

Work out the fastest way to pay off your credit card.

If you only pay the minimum, you’ll pay a lot of interest and it will take years to pay off your debt in full.

If you’re finding it hard to pay the minimum amount, contact your bank or credit provider straight away or talk to a free financial counsellor. Taking action early stops a small money problem from getting bigger.

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.

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Will My Credit Score Be Affected

Enrolling in a debt management plan will have some negative impact on your credit score. Any debt enrolled in a debt management plan will have an R7 rating in your credit report. Youll see This notation anytime you repay a revolving credit line on an adjusted payment plan.

This notation generally remains on your credit report for two years after you leave the program. R7 notations tend to negatively impact your credit score because it shows you werent able to repay a debt on a standard repayment schedule.

The degree to which a DMP will affect your credit score depends on your credit history and how many other negative items you have on your credit report when you enroll. The impact will be more significant if your credit score is high when you join versus a consumer whos incurred other penalties beforehand.

Why Debt Validation Over Debt Settlement Services

Average American Credit Card Debt by State
  • Pay less than what you would pay if settling a debt
  • After a debt is proven to be legally uncollectible, it can no longer legally remain on credit reports
  • The average plan is for 36 months, versus 42+months on settlement
  • No taxes owed if a debt is proven to be invalid
  • Money-back guarantee
  • Accounts can sit for over a year before they are negotiated, leaving more time for lawsuits to occur with settlement services. Third-party collection agencies, including Midland Funding, Portfolio Recovery, and Cavalry Portfolio, are issuing lawsuits in under sixty days after receiving credit card accounts, resulting in debt settlement programs becoming much costlier because settlements are no longer attractive. Debt validation can get in front of this change, in many cases disputing the debt before lawsuits occur.

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What Is A Credit Card Hardship Program

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Financial emergencies, setbacks and major life changes can come at you quickly, making it difficult to meet monthly financial obligations like credit card payments.

Before you fall behind, you can pick up the phone and ask your card issuer for help. Many lenders offer access to a credit card hardship program that can provide assistance to those who are struggling with circumstances beyond their control. After all, a bank wants to collect what it’s owed, and that’s less likely to happen if you default.

Hardship programs aren’t widely advertised not all issuers offer them and enrolling in one may still have consequences for your account and your credit scores. But if you need help, it may be an option.

  • What is a credit card hardship program?

  • Where to find a credit card hardship program

  • Circumstances that may qualify for a hardship program

  • Steps for getting into a hardship program

  • Potential hurdles and drawbacks of a hardship program

  • Alternatives to a credit card hardship program

Learn How To Use Your Credit Responsibly In The Future

After you reach your goal of paying off your credit card debt, it’s important to be proactive about developing good credit habits to avoid ending up in the same situation again.

This includes:

  • Sticking to your budget to avoid overspending.
  • Paying off your balance on time and in full every month.
  • Avoiding racking up a high balance.
  • Taking advantage of credit card rewards and benefits to add more value to your everyday spending.

It’s also a good idea to check your credit score regularly to know where you stand at all times. This can also help you spot potential issues that could hurt your credit, so you can address them quickly. In addition to your credit score, make sure you also frequently review your credit reports, which give you a deeper understanding of what’s affecting your credit score.

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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.

Pay Off Your Smallest Balances First To Create Momentum

How to Get Out of Credit Card Debt: The Basics (Debt Management 2/4)

Commonly called the Snowball strategy, it relies on human psychology – we feel we are making progress if we can get the “quick wins”. Pay off the smallest debt first and the sense of achievement encourages us to keep going and tackle the next smallest debt.

This positive feedback cycle builds momentum until all debts are cleared. Like the avalanche strategy, you maintain the minimum repayments on other debts while you work to clear the first one. Similarly, the amount you can dedicate to the repayments on the next debt increases as you clear each smaller debt.

Note however that this strategy will almost certainly be more expensive in the long-term if you have larger, higher interest debts compounding while you pay down smaller ones.

Be very honest with yourself about which credit card debt strategy will work for you. If you have the discipline and determination, the avalanche strategy will always be better from a strictly financial standpoint. But if you think you need the encouragement that comes with clearing many smaller debts, the snowball strategy may be a better fit for you.

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How To Manage Debt If Your Debt

Its important to note that if your DTI is over 41%, you cant get loan approval. However, you can get credit cards and take on credit card debt. You can also qualify for alternative financing solutions that dont require credit checks, such as payday loans. This is how you can get overextended with debt and end up with a DTI of over 41%.

If your ratio is above 50% its a sign of debt problems and you need to take immediate action. Which actions you take depend on your financial situation, budget, credit, and the types of debt you hold. Here are some options you should consider to help you get out of debt faster:

If youre spending over half your income on debt payments, find a better way to pay off your debt.

Know How Much You Owe

Make a list of your debts, including the creditor, total amount of the debt, monthly payment, interest rate, and due date. You can use your credit report to confirm the debts on your list. Having all the debts in front of you will allow you to see the bigger picture and stay aware of your complete debt picture. Debt reduction software can make this process easier.

Once you have a handle on your debt and your income, you can calculate your Debt to Income ratio . This ratio tells you how much of your income is going toward debt payments. To find yours, divide your debt payments by your income, and multiply by 100. For example, $1,200 of monthly debt divided by $3,000 of monthly income is 0.4 x 100 = 40%. The lower this number is, the better, and tracking it can help you understand your finances more clearly.

Don’t just create your list and forget about it. Refer to your debt list periodically, especially as you pay bills. Update your list every few months as the total amount of your debt changes.

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Consider Different Forms Of Consolidation

Debt consolidation can be a very effective way to take control of your debt. The process involves combining debt from multiple credit cards into a single new loan with a lower interest rate.

A lower interest rate means you can pay more on the principle of your loan, paying it off faster and saving money. And â drumroll, please â you’ll end up with only one convenient monthly payment.

There are several ways to consolidate credit card debt, each with its own strength. Choosing the best way to consolidate your credit card debt depends on your individual situation. If you think debt consolidation is for you, consider factors like your credit score, total amount owed, and current interest rates. Then research your consolidation options carefully.

You Don’t Pay What You Can

Here

Having a credit card means having the responsibility to pay your bill off in full every month so you don’t accrue additional expense in interest payments, which just prolongs your debt.

For those who anticipate having trouble paying off their credit card bills because of the current coronavirus uncertainty, consider a balance transfer card with no fee so you don’t accrue interest on that debt.

It’s important to note that many balance transfer cards typically require a good or excellent credit score to qualify, which is 670 or higher on the FICO scoring scale and 661 or higher on the VantageScore model. There are options for people with fair credit, like the Aspire Platinum Mastercard®, but they may come with shorter no-interest periods.

If you’re having trouble making your minimum payments, don’t hesitate to talk to your lenders and creditors. Depending on your unique financial situation, this may mean making a call to see if they can negotiate your credit card rate and lower your interest. Many of the big card issuers, such as Bank of America, Chase and American Express, offer financial assistance programs for economic hardship.

And if you can pay some or the minimum payment on your credit card bill, know that any amount helps even if it’s not the full balance.

“When a consumer is not able to pay in full, they should pay whatever they can and avoid any late payment as that may not only hurt their credit standing but further increase the interest rate,” Anderson says.

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