Wednesday, March 29, 2023

How To Pay Off Your Credit Card Debt

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How to Pay Off All Your Credit Card Debt FAST

At first glance, you may not be sure where you can cut back in your budget. But with a deeper dive, you may be able to find some opportunities. Start with your recurring bills. For example, if you have multiple streaming services but don’t use one or two very often, consider cutting them temporarily until you’ve paid off your debt.

Also, take a look at your car insurance premiums and shop around to see if you can get the same coverage with another insurance company for less.

In addition to those regular bills, take a look at how you spend your money every day. If you tend to go out for lunch during the week instead of bringing something from home, making that small change can free up a lot of cash flow.

Again, remember that you don’t necessarily need to change your lifestyle and spending habits permanently. But making small temporary changes now can put you in a better financial position in the future.

Your Credit Card Debt Questions Answered

Your credit utilization ratio measures the amount of credit youre using compared to your cards credit limit. If you dont carry a balance, your credit utilization is 0. A high utilization rate may indicate youll have a hard time paying your credit card balance on time, so a lower utilization rate is better for your credit score. You should aim to have a credit utilization ratio of 30% or less. Anything higher can damage your credit score. Not using your card enough can also affect your credit score because lenders wont be able to measure your creditworthiness.

Stop Adding To Your Credit Card Debt

It should go without saying, but dont continue the cycle of high-interest debt. Focus on paying off the credit card debt you have and dont continue to use your credit cards.

If youll be too tempted, you might want to consider cutting up your cards or giving them to a trusted friend or family member to hold onto so you dont use them so you can focus on paying off your debt now. Either way, paying off credit card debt will only be effective if you avoid racking more up, so keep that in mind as you go through this process.

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Use A Balance Transfer Credit Card

One smart way to get out of debt is to complete a balance transfer. You can transfer debt from high interest credit card to a balance transfer credit card that offers no interest for up to 20 months.

If you want a long stretch of time to pay off your debt, consider the Citi Simplicity® Card with 0% APR for the first 18 months on balance transfers or the Discover it® Balance Transfer with an introductory 0% APR for the first 18 months on balance transfers .

Balance transfer cards often have set maximum limits on the amount of debt you can transfer, and you can’t complete a transfer between cards issued from the same bank. Make sure you read the fine print before requesting a transfer. Also be aware that good or excellent credit is often required for a balance transfer credit card.

Find out more about how to make the most of your balance transfer.

Carve Out What Your Budget Can Afford To Pay Off Credit Cards

How To Pay Off All Your Credit Card Debts

Assume that you will only make your minimum monthly payments against your credit card balances and then work out the rest of your monthly budget. Once you find out how much additional money you can put towards your credit card debt, you can build a repayment strategy;that works.

  • Add up all of your monthly bills and money for necessities, including the minimum payments due on all of your cards.
  • Determine how much cash you have left over that you can dedicate to debt repayment.
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    Consolidate Credit Card Debt With A Consolidation Loan

    If you have multiple cards and you feel like your payments arent making much of a dent in the debt because you have so many of them, consider applying for a consolidation loan. Consolidation loans gather your debt into one loan where the interest rates may be lower than the original rates on the cards. This allows you to make one payment instead of juggling multiple accounts and payments. If you own a home, you may want to use our Home Equity Loan Calculator;to see if this option could save you money. You should examine the terms and conditions of the consolidation loan to make sure that your interest savings are not outweighed by any fees.

    A Debt Consolidation Loan

    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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    What To Do With Your Newfound Habit

    Once youve paid off your high-interest rate credit cards youll have built a habit of avoiding negative compound interest. You can now turn that newfound habit into other financial goals.

    Build your emergency fund

    Its important to have at least a few months worth of living expenses built up. This provides a cushion for your quality of life in case you lose your income. If you feel like 6 months isnt enough try building your savings to the level of your annual salary or until you feel comfortable.

    Invest for the long-term

    Another great use of your new savings is to invest. Research shows that investing for the long-term is the way to go. We recommend getting started with low-cost index funds vs. purchasing individual stocks and using the dollar cost average investing method. Check out our favorite brokerage accounts and our favorite auto investing tools on the Ostrich App.

    Take a small calculated bet

    Investing for the long-term is proven to be the most sure-fire and safe way to build wealth, but it is boring. Boring is good for your major goals. We like boring!;

    Set A Goalstart By Setting A Goal You Can Achieve

    How To Pay Off Your Credit Card Debt

    Its important to set realistic goals for yourself, especially when theyre about paying off high interest credit cards or other types of consumer debt .

    While its easy to quickly run up balances, it takes time and self-discipline to pay them off.;Watch how youre doing regularly to stay on track and motivated. Make your financial goals;S.M.A.R.T. to keep sight of what youre aiming for. You can learn more about how to set S.M.A.R.T. financial goals here.

    Knowing where you want to end up will make it much easier to figure out what you can do to get there. If you ever feel stuck, one of our certified counsellors would be happy to help.

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    Downsize As Much As You Can

    To pay off debt fast, you need to save more money so that you can throw it at your debt and start paying off the principal.

    Now, like popular belief, you dont need to make a lot of sacrifices to save money. The easiest way to start saving more is by downsizing things that are not necessary or important to you.;

    Start with keeping a track of where your money is going and the things youre spending on. Then, rate those things on a scale of necessity/need, important but not a necessity, not that important, and why the hell do I spend money on this.;

    Once you know what youre spending on, look where you can cut expenses completely and where you can downsize and save money.;

    Going to an expensive gym? Maybe you can try a cheap, local gym instead. Driving a high-end car, why not switch to a low-cost one. Eating a lot outside, try having some homemade food. Itll also benefit your health.;

    Try downsizing most of the things that fall under the important but not a necessity and not that important brackets.;

    Also, absolutely stop spending on things that you know youll regret later. For example, impulse shopping and expensive night-outs.;

    Having problems understanding anything, or does the language seem foreign to you? Make sure you attend the free masterclass here

    Employ The Debt Avalanche Method

    One of the most famous debt elimination strategies is Dave Ramseyâs debt avalanche method. This one requires that you take a look at each of your separate credit card statements to determine their interest rates, rank them from highest interest rate to lowest, and then start focusing your attention on the one that is costing you the most in interest charges. So, the idea here is to focus your attention in the right areas so you end up throwing less money away by the end.

    Make minimum payments on each card, except the one with the highest interest rate. This card gets as much extra money as you can afford. Once that debt is eliminated, pick the one with the next highest interest rate and start again. Each time you pay a card off, youâll free up additional funds to put toward the next debt, and youâll gain momentum from there, hence the avalanche. Financial fees pack a punch, so this strategy is great for anyone concerned about the late fees, cash advance fees, and annual fees that typically come with credit card debt.

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    The Difference Between Secured And Unsecured Credit Cards

    There are two types of traditional credit cards: secured and unsecured. Both offer easy access to credit, a convenient way of paying for many goods and services, and possibly; rewards programs. Secured and unsecured credit cards, however, are very different when it comes to the credit card companys rights when a consumer fails to make their payments.

    In the case of a secured credit card, the money advanced to the consumer via the credit card is secured against real property the consumer owns. Thus, the credit card company has collateral it can go after in the event the cardholder does not make his or her payments.

    The most common collateral used on a secured credit card is the cardholders home. Some Canadians have signed a Master Credit Agreement with a Canadian financial institution, under which the consumer receives access to a certain amount of credit in exchange for collateral, typically a mortgage on the consumers residence.

    If a credit card company issues a credit card to a consumer and does not take some kind of security interest or collateral, then the card is an unsecured credit card.

    Many credit cards in Canada are unsecured. These tend to have higher interest rates than secured credit cards. In the event that a consumer with an unsecured credit card stops making payments, the credit card company has no collateral to look to in order to recover its monies. Therefore, the company will use other methods.

    Talk To Your Credit Card Company

    4 Ways To Pay Off Your Credit Card Debt

    If you are unable to pay your credit card debt owing to a financial crunch as a result of job loss, failure in business, or any other reason, your interest rate will keep on increasing until you choose to do something about it. If thats the case, it is advised that you talk to your credit card company and discuss the same. If the company finds your reason to be genuine, they will make sure to lower some of your burdens, such as providing temporary succor or relaxing their recovery of interests.

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    Clear Your Cards Debt Challenge

    The Clear Your Cards debt paydown challenge is the most responsible way to use credit cards and ensure you payoff your credit card debt every month. Credit cards can be great tools with fraud protections, awesome perks, and ease of use, but only if you pay them off in full every month.;

    Using the Clear Your Cards challenge youll learn to use credit cards to your advantage. Thus avoiding mountains of debt which will keep you from saving, investing, and achieving your goals.;

    As we outline in our Debt 101 guide, it is critical to pay off your high-interest rate debt so you can put yourself in a position to succeed financially and credit card debt is some of the highest interest rate debt around!

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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.

    Find out how to get back on track.

    Get the help you need. Find the right option that will work for your specific set of circumstances. Instead of endlessly looking through debt consolidation company reviews, let one of our experienced counsellors help you. If we can’t fully help you, we’ll refer you to an organization we trust that can or help you put together an action plan so you can get started on your next steps. Feel free to give us a call or chat with us online. We’re here to help.

    Get the clarity you need

    She Calculated Her Budget


    Lana was fortunate to have enough income that she could pay off her debt without taking on a second job. But she did need to reevaluate her budget.;Before she began her debt payoff journey in the fall of 2018, she first prioritized building up a savings account that contained a few months’ worth of living expenses.

    Once she felt more secure knowing she had a rainy day fund, she shifted her focus to her debt.

    “Looking at my budget and understanding exactly how much I could put on my credit card per month really motivated me. I had it down to the dollar,” she tells Select.

    Then she created a plan to pay off the existing debt, and she started by calculating how many months it would take her to pay it off if she had a 0% interest credit card. To her surprise, she realized could pay it off comfortably within about 12 months if she could eliminate those sky-high interest payments.;

    So Lana looked for a 15-month balance transfer card in order to give herself a three-month window of “wiggle room” that was helpful for her peace of mind.

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    Tips For Getting The Right Credit Cards For Your Needs

    • Most Canadians dont need to have dozens of credit cards in their wallet. Of course, having several increases the likelihood that you will face challenges with debt.
    • As such, you must only get new credit cards when you have a clear need and the means to manage the debt.
    • Review your budget carefully before you apply for a new card to make sure you can afford the monthly payments.
    • Always try to maximize your score before you apply for a new credit card.
    • If you have balances on your current cards, try to pay them off before you apply.
    • Only get a balance transfer credit card if you can afford to pay off the consolidated balance in full during the 0% APR period when you first open the card.

    Snowball Method: Pay Off The Smallest Balance First

    Some financial advisers suggest tackling the smallest balance first, while maintaining the minimum payments on the others.

    While this won’t reduce the amount of overall interest you will pay against all of your credit cards, it’s a great way to build momentum: Once you’ve paid one card off, you’ll be even more excited and determined to pay off the card with the next smallest balance, and so on until you’ve rid yourself of all credit card balances. The way it works is:

  • Identify the card with the lowest balance and add its minimum payment amount to the amount of money you dedicated towards paying off your debt in the steps above to get a set monthly payment you’ll make until the entire balance is paid off.
  • Once that card is paid off, you can take that monthly payment and add it to the minimum payment of the 2nd card with the next smallest balance. Add them together to get a new, bigger monthly payment to put toward the second card, and make that payment until its balance is zero.
  • Repeat the exercise until all your cards are paid off.;
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