Pay a minimum amount towards your credit card debt and you’re off the hook for the entire bill – this is a great idea, but it is important to realize that it is only temporary, the reality is that the rotating charge will come back to bite you. So ridding yourself of your credit card balance must be your top financial priority. Create a proper action plan that would help you work at actually reducing your balance.
Here are 5 smart and simple strategies to eliminate your debt burden.
1) Target one card first – If you owe multiple credit card debts, it will take long to wipe them out. So, give yourself the motivation of immediate gratification right from the beginning and to do that, you need to have at least one card totally paid off. Throw in as much as you can towards the card with minimum balance first. You should do this even if you have to make a minimum payment for other cards. If you want to boost your credit score, then pay off the card that you use more frequently or the one with the highest utilization rate, which is your balance divided by the credit card’s limit. Bringing the utilization rate down by 20% would increase your score remarkably. However, if your motto is to pay the minimum interest, then you should start with the card with highest interest rate.
2) Negotiate for a lower interest rate – Talk to your creditors directly and ask for a reduction in the interest rate. If you have good credit score and if you’re a long term customer who makes timely payment, your creditors are very likely to listen to you. By getting a percentage or two shaved off, you might save hundreds of dollars a year. If you’ve got a better offer from the competitor, tell the customer service representative as there is a huge chance that they will try to match the offer.
3) Transfer balance – It’s really alluring to transfer a balance from the card with high interest rate to a card with a lower one. It’s a potential move that would let you save hundreds of dollars annually. Nevertheless, remember to make timely payment every month and pay off the debt within the introductory low-interest-rate time frame that usually lasts 12 months to 18 months after your first billing cycle ends. Otherwise, the rate could rise rapidly and you may end up paying much higher than what you’ve just got rid of. In addition, you must not make any purchase with the new card often, as the low rate of interest doesn’t apply to it. Note that you may be charged with a balance transfer fee while transferring the balance.
4) Make two minimum payments if needed – Credit card lenders generally charge interests on a daily basis. The sooner you make your payment, the quicker the average daily balance will be reduced and that will ultimately translate into fewer dollars towards the interest you’ll pay over the span of the debt. If you have a tight budget, just keep paying a minimum balance every month and then try to make the minimum balance twice a month until the entire debt is paid off.
5) Consider peer-to-peer lending – If you fail to pay off the credit card debts in full and get free, you can try borrowing money from a peer-to-peer lender and pay off your credit card debts with that money. There are a number of legitimate secure peer-to-peer lending sites that offer loans at a fixed interest rate which can be 20% to 30% lower than credit cards and thus, you can save a fortune in interests.
These are 5 of many useful strategies that you can implement to get rid of your debt burden.