Friday, November 25, 2022

Should I Pay Off My Credit Card Debt

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Nobody likes to hear this, but one of the easiest ways to quickly pay off debt is to throw more money at it every month.This means finding new ways to save, like canceling your cable TV or reducing the number of nights you order takeout. Anytime you can make more than the minimum payment on your credit card bills, youre one step closer to being debt-free.

Have Only One Payment To Make Each Month Instead Of Multiple

Another benefit of paying off your credit cards with a line of credit is youll only have one payment to grapple with each month. If you were carrying a few balances on a number of different cards, you had many minimum payments and bill due dates to worry about. Now with all your debt consolidated on a line of credit, you only have one!

Debt Settlement Has Risks

Although a debt settlement company may be able to settle one or more of your debts, consider the risks associated with these programs before you sign up:

1. These programs often require that you deposit money in a special savings account for 36 months or more before all your debts will be settled. Many people have trouble making these payments long enough to get all of their debts settled. They drop out the programs as a result. Before you sign up for a debt settlement program, review your budget carefully to make sure you are financially capable of setting aside the required monthly amounts for the full length of the program.

2. Your creditors have no obligation to agree to negotiate a settlement of the amount you owe. So there is a chance that your debt settlement company will not be able to settle some of your debts even if you set aside the monthly amounts the program requires. Debt settlement companies also often try to negotiate smaller debts first, leaving interest and fees on large debts to grow.

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To Pay Less Interest On Debt Pay Asap

Credit card users who always follow Rule #1 need never worry about paying interest. But for those carrying a balance, its important to know how the amount of interest owed is determined. Each month, credit card companies take an average of the balance owed by a cardholder on each day of the billing period. This is known as an average daily balance. This number is applied to the cardholders specific interest rate.

Out of convenience, cardholders in debt sometimes wait until the due date of their next bill to finish paying off the previous months balance. This means that for every day the payee might have had the money to pay even part of that bill off they were still on record as owing the full value of their balance. If instead they paid off their balance halfway through the billing period, their average daily balance for that period would drop by half. If halfway through the period they were able to pay off, say, only a quarter of their debt, they could still reduce their average daily balance by over 12%. Any amount paid down at any time during the period can reduce the daily average balance.

Rather than deciding to pay at the beginning or the end of their billing period, cardholders in debt should simply keep working away at what they owe as they can, knowing that its not just the total paid off at the end of the month that matters, but the timing, too.

What To Look Out For With Balance Transfer Cards

Should I pay off my credit cards with a personal loan? No ...

If you do apply for a new balance transfer card, make sure youre confident in your approval odds so you dont need to apply for too many cards at once. Each time the credit bureaus check your credit, it shows up on your credit report as a hard inquiry and can have a temporary negative effect on your score. Also, be aware that credit cards particularly balance transfer cards are not always easy to qualify for. During the pandemic, many card issuers tightened the requirements for approval on new credit.

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When You Should Change Your Bill Due Date

If you struggle to have cash on hand when your due date rolls around, most card issuers allow you to change the day your payment is due. This allows you to select a day that works best for you , which could help you make full payments every month.

On the other hand, if you can’t pay in full because of overspending, consider cutting back on non-essential expenses, such as streaming subscriptions or gym memberships.

And if you’re falling behind on payments because of a temporary layoff or cut-back on your working hours, you may want to consider using a 0% APR card so you can pay off debt over time with more flexibility on when the entire balance is due.

Cards like the Chase Freedom® and Wells Fargo Cash Wise Visa® card can help you finance new purchases without interest for 15 months . Keep in mind that these cards require good or excellent credit. And while they can help you temporarily avoid interest charges, you’ll still need to make minimum payments during the no-interest period.

Information about the Chase Freedom® and Wells Fargo Cash Wise Visa® cardhas been collected independently by Select and has not been reviewed or provided by the issuers of the cards prior to publication.

Editorial Note:

Next Focus On Debt Repayment

Its important to note that your individual debt repayment strategy will vary based on what type of debt you have. If you primarily have student loans, for example, you may be able to look into deferment, forbearance or loan forgiveness through your loan provider. If you are mostly dealing with credit card debt, these solutions will not be available.

Regardless of what kind of debt you owe, there are two common strategies for repayment: the snowball method and the avalanche method. Both will ultimately help you reach debt-free living but in slightly different ways.

The snowball method consists of listing your debts by total amount and paying off the smallest ones first, slowly working your way up to the most expensive. This strategy is more focused on the psychological benefits of paying off debt. Many people find that the satisfaction you feel when paying small amounts first is highly motivational and helps lessen the emotional burden of debt.

With the avalanche method, you rank your loans based on interest rates, rather than by the total dollar amount. Then you focus on paying off the balances with the highest interest rates first, while continuing to pay the minimum each month on all other loans. This can be particularly helpful if you have credit card debt in addition to student loans or other types of loans, as interest rates are typically higher on credit card accounts.

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Debt Snowball Or Avalanche

You may also decide the best way for you to tackle your credit card debt is by focusing extra payments on one of your cards. There are two primary ways people go about this: either the debt snowball or debt avalanche method.

The benefits of using one of these methods include:

  • Avoiding new credit lines. If you dont have great credit or dont want to take on additional debt, these methods let you focus on paying down your debt with what you have, not adding to your burden.
  • Focusing on high interest. With the debt avalanche method, you pay off your debt with the highest interest rate first. This could save you more in the long run.
  • Focusing on little wins. The debt snowball method focuses on paying off the debt with the lowest balance first. If you need a quick win, this might be your best bet.

Of course, these payoff methods also have their drawbacks. You may find:

  • Its a slow process. Increasing your payments with only the cash you have on hand right now means you may pay off your debt slower compared to a personal loan.
  • Your budget doesnt work with it. If your budget is already stretched thin as it is, you may not have any extra money to put toward higher credit card payments.

How To Choose The Best Personal Loan

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There are many different personal loan lenders that charge different interest rates and fees and offer various repayment terms. Theres no one set of standards that personal loans follow, which means you could see a wide range of offers based on what you qualify for. When exploring personal loan options, consider:

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Civil Judgments Dont Affect Your Credit Score

Finally, I want to touch on judgments. Civil judgments are no longer reported on your credit report by any of the three main reporting agencies, so they cant impact your score. A judgment issued in August 2012 for this debt would have been within the statute of limitations in 2012.

Its important to know that Pennsylvania does not allow wage garnishment for credit card debt. In the case of a judgment, the collector had four years to collect in Pennsylvania, and then they could have gone back to court to have the judgment renewed.

There is no law that says the court must contact you if the judgment is renewed, though. But you should still be able to find out if you do have an outstanding judgment online, so it could well be that either there was no judgment in the first place or it was not renewed.

My advice is to be very careful with what you decide to do about this debt and dont skimp on the paper trail.

Remember to keep track of your score!

How To Save Money

There are two major categories of expenses you can reduce to save money: fixed and variable. Fixed expenses are recurring bills that don’t change, like your rent or mortgage, while variable expenses, like entertainment and meals out, can vary from month to month. Here’s how to address both:

  • You won’t know where to cut back if you’re unsure where your money is going in the first place. Make a budget so you can assess what you’re currently spending and where there’s room to trim.
  • Target your biggest monthly expenses first, like rent and transportation. Moving into a less expensive place, getting a roommate or refinancing your mortgage can all yield big savings. Buying a used car instead of a new one or shopping for cheaper car insurance could also help bring down monthly bills.
  • If you’ve already cut back on major expenses, or you’re unable to make a change to your housing or transportation at the moment, next set your sights on smaller monthly bills, like utilities. Negotiate down your cable or internet bill, for instance, or shop for a new cell phone plan.
  • Next look at variable expenses. If food takes up a big portion of your budget, try cutting out takeout for a month to see how much you save, or go out to eat just once a week instead of three times. Spend Sunday afternoon cooking for the week so you can bring leftovers to work. Cancel any subscriptions you don’t use, like gym memberships or streaming video or music services.
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    Should I Pay Off My Credit Card Debt Immediately Or Over Time

    If you’ve come across extra cash and have credit card debt, you may wonder whether it’s a good idea to pay off your balance all at once or over time. You may have heard carrying a balance is beneficial to your credit score, so wouldn’t it be better to pay off your debt slowly?

    The answer in almost all cases is no. Paying off credit card debt as quickly as possible will save you money in interest but also help keep your credit in good shape. Read on to learn whyand what to do if you can’t afford to pay off your credit card balances immediately.

    Sort Your Priorities And Drop Some Expenses

    Should I Pay Off My Credit Card Early?

    Okay, its time to get a little radical. Are you ready?

    Look back at that budget. You trimmed it up. Now cut off some branches. It might hurt, but if you can take certain expenses out of your budget completely, thats the real money saver.

    What extras can you live without in this season? Its not goodbyeits see you later.

    Here are some common unnecessary budget lines you can delete : restaurants, entertainment, subscriptions you dont use regularly, cable, trips to the coffee shop. Be honest with yourself and your budgetwhat things can you live without while youre paying off that credit card debt?

    You arent cutting all the fun. Just get creative with budget-friendly fun and rewards! Heythese sacrifices right now will make a huge difference for your future.

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    The Pros Of Contributing To Your 401 First

    • You will be building a retirement nest egg. Younger workers have the gift of time when it comes to their ability to amass wealth. Failing to take advantage of that time horizon is a lost opportunity youll never get back.

    • You will receive a company match on your contributions, which is free money and an instant return on your deferrals.

    • Money contributed to a 401 is done on a pre-tax basis, saving you money at tax time.

    • The money will be put into your retirement savings and out of reach for unnecessary spending.

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    How Much Will Credit Score Increase After Paying Off Credit Cards

    The amount your credit score improves depends a lot on how high your utilization was in the first place. If you have multiple credit cards with balances, this estimation becomes more difficult.

    If your utilization rate was above 30%, your credit score could jump 10 points or more when you pay off credit card balances completely. On the other hand, if your credit utilization was already fairly low, you might only gain a few points when you pay off credit card debt, even if you pay off the cards entirely. Use our to see how much interest you may actually be paying.

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    Follow Your Debt Repayment Plan

    Paying off debt isnt easy, and consolidating high-interest debt to a low-interest line of credit card is only one step in the right direction.

    You need to commit to your debt repayment. Whether youre using the Debt Avalanche or the Debt Snowball or some other method, paying off debt is a marathon, not a sprint!

    If you need extra help, use a free tool like Undebt.it to get you to debt free faster.

    Should I Contribute To My 401k Or Pay Off My Credit Card Debt

    Should I Invest or Pay Off Credit Card Debt?

    Its been nearly seven years since the financial crisis swept through the nation, yet two-thirds of Americans said they still feel haunted by its effects in the way they work, live, save and spend, according to a study from Allianz Life Insurance Co. Many of the 2,000 baby boomers and Gen X-ers studied also said they had lower confidence in their ability to achieve financial security.

    For workers who hold credit card debt, which is more likely to lead to a secure future: diverting what wouldve been their retirement plan contribution and paying off that debt instead or making their 401k plan a priority? Here are some pros and cons associated with each of these money moves.

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    I Just Paid Off My Credit Card Will My Credit Score Go Up

    Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list ofour partnersandhere’s how we make money.

    Paying off credit card debt is smart, whether you do it every month or finally finish paying interest after months or years. And as you might expect, it will affect your credit score.

    If you pay on time and are chipping away at a balance or eliminating it with one big payment, your score will likely go up.

    Heres how various credit card payoff scenarios are likely to play out.

    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.

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    To Maximize Financial Return Pay Later

    Many Americans do pay off bills in full and many keep monthly spending well below the recommended threshold of 30%. People who do these two things reliably are more likely to have a favorable credit score. These routinely-responsible cardholders dont benefit much from rushing to pay off monthly bills.

    Instead, late-cycle-payers can likely afford to take full advantage of the credit extended to them each month. Of course, the bill total will stay the same throughout a billing period, but cardholders can benefit from the time value of money extended to the amount owed. This value comes from the concept that there is value in simply holding a sum of money over time, based on its potential to earn.

    Up until the time cardholders actually pay the bill, credit card users can still earn interest on the money owed. Whether that money would otherwise be invested somewhere or held in a checking account, the additional interest this would garner can add up to a significant sum over months and years. So, for cardholders unburdened by debt or a waning credit score, waiting to pay until close to the end of a billing cycle will almost certainly increase overall wealth, if just by a little at a time.

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