Friday, November 25, 2022

How To Pay Down My Credit Card Debt

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Consider A Balance Transfer Credit Card

How to pay down credit card debt on your own

If you have good-to-excellent credit despite your debtwhich is possible if youve been making your minimum monthly payments on time and keep your lowyou may qualify for a 0 percent APR balance transfer offer with a balance transfer credit card.

This zero-interest introductory offer could last anywhere from 12 to 21 months and will let you transfer your higher-interest balances to the new card. Youll save on interest for the duration of the 0 percent period, making it easier and faster to get out of high-interest debt.

You should always pay attention to the interest rate after the promotional period is over, says Justin Zeidman, assistant vice president of open banking at Navy Federal Credit Union. Consider how long it will take to pay off your credit card debt in comparison to the promotional period so you dont get stuck with a higher interest rate after the 0 percent interest period is over.

  • Who this strategy is good for: Those good at keeping track of credit card payments.

Consider The Snowball Method Of Paying Off Debt

This involves starting with your smallest balance first, paying that off and then rolling that same payment towards the next smallest balance as you work your way up to the largest balance. This method can help you build momentum as each balance is paid off. Understand the pros and cons of this debt pay down strategy by reviewing the Snowball versus Avalanche methods of paying down debt.

Understand How The Debt Happened

Figuring out how you got into debt might help you avoid overspending in the future. Try going over your credit card statements from the past few months to find patterns in your habits. Are there places where you can make some changes to your daily or monthly spending?

For example, maybe you can cancel the gym membership and work out at home or you can cook more of your meals instead of dining out.

If your credit card debt was the result of a large, unexpected expense, you might make a plan to create an emergency fund. This can help you cover big bills in the future without going into debt.

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% Balance Transfer Credit Card

It might seem counterintuitive to apply for a credit card when your main goal is to get out of credit card debt, but 0% balance transfer cards can help save you money in the long run. Find a card that offers a long 0% introductory period preferably 15 to 18 months and transfer all of your outstanding credit card debt to that one account. You’ll have one simple payment each month, and you wont pay interest.

Get A Debt Consolidation Loan

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A lot of us are being crushed by credit card interest rates north of 20%. If youre in that boat, consolidation and refinancing might be worth a look.

A good resource is Fiona, a search engine for financial services, which can help match you with the right personal loan to meet your needs.

Fiona searches the top online lenders to match you with a personalized loan offer in less than 60 seconds. If your credit score is at least 620, its platform can help you borrow up to $250,000 with fixed rates starting at 2.49% and terms from 6 to 144 months.

Just be aware of some problems with debt consolidation loans.

For example, if the new loan stretches repayment out over a longer time, you might pay more interest, even if the new rate is lower. Do the math before taking out a new loan.

On the other hand, if you can get an interest rate lower than the average of the balances it will pay off , and you have a definite plan to pay off the new loan quickly, it makes sense.

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Make An Extra Monthly Payment

Youre probably in the habit of monthly billing cycles, but you dont have to wait until your payment due date to pay down some of your balance, and you arent limited to making just one payment each month.

If you get paid every two weeks or bimonthly, making two payments a month might be feasible if youre paid more often say, you get a weekly paycheck or youre a tipped worker you might want to consider jump-starting your debt-management plan by paying weekly.

Another advantage to making more than one monthly payment is if you use that money to pay down your credit card balance as soon as you earn it, you wont have the chance to change your mind later and splurge on something else with those funds.

Just make sure that the total amount of money you pay by the due date on your credit card statement is at least as much as your minimum payment, because late fees and penalty rates still apply if you fail to do so.

Heres another hot tip: Lowering your debt quickly can also improve your credit score by lowering your credit utilization, which can make it easier to qualify for a balance transfer credit card .

Find Ways To Make Extra Cash On The Side

There are several different ways you can make money, even from the comfort of your home. Here are some of the more common ways to increase your cash flow:

  • Take on more hours at your current job.
  • Ask for a raise.
  • Look for temporary or odd jobs on job boards.
  • Turn something you’re good at into a side business.
  • Sell some of your personal belongings that you no longer need.

In addition to these, there are several other ways you can earn a little extra money each month to help pay down your debt. Take time to consider which approach works best for you based on your situation.

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Pros And Cons Of The Debt Snowball Method

It’s not easy to get excited about paying off what you owe, and it’s even harder if you dont seem to be making a dent in your debt without a sense of progress, you can become prone to throw in the towel early on.

It’s our hunger for instant gratification that makes the snowball method so effective, says personal finance author and talk-show host Dave Ramsey, an advocate of the technique. The math seems to lean more toward paying the highest-interest debts first,” he allows. “But what I have learned is that personal finance is 20% head knowledge and 80% behavior. You need some quick wins in order to stay pumped enough to get out of debt completely.

The debt snowball method’s big advantage is that it helps build motivation. Because you see fast resultseliminating some outstanding balances completely in only a few monthsit encourages you to stick with the plan. That mountain of debt doesn’t seem so unscalable after all. Plus, it’s easy to implementno need to compare interest rates or APRs just look at each sum you owe.

The big drawback of the debt snowball is that it can be more expensive overall. Because you’re prioritizing balances over APRs, you could end up paying more money in interest. Getting completely free and clear could take more time, too, depending on the nature of the debts, and how frequently the interest on them compounds.

  • Incurs more interestmore expensive overall

  • Can take longer to become completely debt-free

A Debt Consolidation Loan

How to pay down credit card debt

Debt consolidation loans are a type of personal loan for paying off debt. After you get the loan, you use it to pay your credit card balances. Going forward, you only need to make your loan payments.

Since personal loans often have lower interest rates than credit cards, you can save money on interest this way. An even more important benefit with this method is the structure it provides.

When you’re paying off credit cards, the amount you pay is largely up to you. You only need to make relatively small minimum payments, and there’s no fixed timeframe to pay back what you owe.

With a loan, you have a fixed monthly payment and a loan term. If you’ve found it hard to pay as much as you should towards your credit cards, then the stricter structure of a loan could keep you on track.

Those are the most effective and popular strategies for paying off credit card debt. Now that you know what your options are, you can choose the one that works best for your situation.

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Keeping Your Credit Cards Open Is Best For Scores

Regardless of the method you choose to pay off credit cards, keeping your paid-off accounts open is generally best for credit scores. Credit utilization is the second most important factor in credit scores. Your is calculated by taking the total of all your credit card balances and dividing that number by the total of all your credit limits, then multiplying by 100 to get your utilization percentage. When you close an account, you lose that available credit, making your total balance on revolving accounts a greater percentage of your overall available credit.

It’s also a good idea to keep the accounts active by using them periodically to make small purchases and then paying off the balance in full right away. By using the accounts but not carrying a balance, you are showing potential lenders that you know how to manage credit responsibly, and you won’t get caught accumulating debt or paying unnecessary interest on your purchases.

Although keeping your paid-off credit card accounts is usually best for credit scores, consider your own unique situation when making this decision. If you have struggled with credit card debt and feel that leaving accounts open may be too much of a temptation to overspend, closing them might be the safest and best option for you.

Thanks for asking.

Jennifer White, Consumer Education Specialist

This question came from a recent Periscope session we hosted.

Checklist For Balance Transfer Fee Details:

Promotional or intro period: Look for the promotional period or introductory period dates. It might be three months or even 18 months. Thatâs how long youâll get your 0% interest rate. Pay as much debt as possible at the 0% interest rate, and donât charge on your other high interest rate cards during the intro period. You could wind up in a hole of new debt if you canât pay your debt off before the promotional offer ends. Paying the new debt before the interest rate goes up is the biggest challenge of using a credit card balance transfer for a debt consolidation loan.

Balance transfer limit: Your credit limit will determine your balance transfer limit. Check the terms on the balance transfer card offer to see how much you can transfer at the 0% rate.

Time limit to transfer: You may have to transfer your debt in 30-60 days for the 0% or special low interest charge to apply. Youâll get a higher interest rate if you donât transfer your debt to the new credit card by the deadline.

Transfer fee: Transfer fees are common. Itâs usually a percentage of the transfer amount. Letâs say thereâs a 3% transfer fee and you want to transfer $10,000 of debt. Youâd transfer $10,000 then be charged $300. If you transfer $1,000 it would be $30.00. Some balance cards may have transfer fee limits. The transfer fee is part of your balance transfer limit.

Check for credit check: Your 0% might be based on a new credit check.

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Example Of The Debt Snowball In Action

Lets take the same accounts we used in the first example.

Type of Debt

To use the debt snowball method:

  • Order the debts, from lowest balance to highest
  • Always pay the monthly minimum required payment for each account
  • Put any extra money towards the lowest balance the personal loan
  • Once the personal loan is paid off, use the money you were putting towards it to vanquish the next smallest balance the credit card debt
  • Once the credit card is paid off, take the money youve been paying and add it to your payments for the auto loan
  • Once the auto loan is paid off, take the money youve been paying and add it to your payments for the student loan
  • Using the debt snowball method, youll end up paying off your accounts in this order:

    • Personal Loan
    • Student Loan

    Grow Your Emergency Fund

    Advice on paying down credit card debt

    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.

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    How To Pay Down Credit Card Debt

    Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.Terms apply to American Express benefits and offers. Visit americanexpress.com to learn more.

    Citi is an advertising partner

    To pay down your credit card debt, you first need to choose the debt strategy that works best for you. Consider a balance transfer credit card or try the snowball method.

    There are many ways to pay down credit card debt from simply making larger payments to consolidating your debt at lower rates. While some methods are better than others, the best option for you depends on:

    • Your budget concerns
    • Your credit score
    • Your access to other forms of credit

    Before embarking on any payment method, create a comprehensive budget to see how much money you can put toward your debt each month.

    The following methods are our suggested options for paying off debt:

    Payoff method
    You are having problems making payments or have fallen behind already on payments.

    How Do I Pay Off Debt With Balance Transfers

    When you have credit card debt, one option is to transfer your credit card balance to a different card.

    If you have an account with a high interest rate, for example, you can transfer its balance to a card with a lower interest rate and spend less money on interest over time. This is like paying off one credit card using another card.

    • Step 1: Identify the credit cards where youre paying interest on a balance
    • Step 2: Decide how much money you can or want to transfer
    • Step 3: Apply for a new balance transfer credit card, offering 0% APR on balance transfers for a set amount of time
    • Step 4: Transfer the balance, or balances, from the older cards to the new card
    • Step 5: Pay off your balance on the new card try to pay it all off before the 0% period ends

    After performing a balance transfer youll open up the credit lines of those cards but dont use your newly available credit to rack up more debt.

    A lower-rate balance transfer card can fit well with the avalanche method. Since you can use a balance transfer to strategically reduce the interest rate on your highest-interest debt, it can buy you time to focus on the next-highest interest account. This can reduce the total interest you pay.

    Many balance transfer credit cards even offer a 0% APR for an introductory period . A 0% APR offer allows you a chance to pay off your credit card balance without incurring extra interest charges.

    MoneyFactBalance Transfer Benefits

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    She Opted Out Of Getting Additional Credit Card Offers

    This was an easy step to take and one that helped Khalfani-Cox avoid the temptation of scoring a new and, thus, spending more.

    “When you’re already deep in debt, you just don’t need that extra temptation,” she says. To reduce the number of unsolicited credit card offers you receive, the Federal Trade Commission says that you can opt out of receiving them for five years by calling toll-free 1-888-5-OPT-OUT or by visiting OptOutPrescreen.com, which are both operated by the major consumer reporting companies.

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    If you have credit card debt, transferring it to this top balance transfer card secures you a 0% intro APR into 2023! Plus, you’ll pay no annual fee. Those are just a few reasons why our experts rate this card as a top pick to help get control of your debt. Read our full review for free and apply in just 2 minutes.

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    Make Your Payments On Time

    You can choose to pay your balance in different ways including:

    • online
    • in person at a branch

    The payment method you choose can affect how quickly it’s processed and the date it’s considered paid. The time it takes to process your payment will vary depending on your financial institution and the payment method you choose. Make sure you know when your payment will be processed to avoid making a late payment.

    Contact your credit card issuer to find out how long it takes to process different payment methods.

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