Many strategies exist for paying off credit card debt, but one effective approach is calculating how much savings is possible.
Consider starting a side business or looking for other means of earning extra money, and use that cash towards increasing your credit card repayment plan.
Pay Off Your Most Expensive Balance First
Experts generally advise taking an aggressive approach when it comes to eliminating credit card debt, with most experts opting for what’s known as the Debt Snowball/Avalanche method as their go-to strategy. It involves listing your accounts in order of interest rate, then throwing any extra money towards paying off one debt at a time – while still making minimum payments on other accounts. Once one debt has been cleared off, move onto the next lowest balance until all your credit card debt has been eliminated completely.
Personal loans offer another viable solution, as they consolidate all your debt into one payment and could have lower interest rates than most credit card rates. But be wary of payday loans, as these typically carry much higher rates that can cause you to fall further into debt.
Though there’s no immediate solution for escaping debt (anyone who claims otherwise is likely trying to scam you), taking a few smart money moves can reduce credit card debt and put you on the road toward financial independence.
Negotiate Better Interest Rates
Credit card interest rates can make paying off your balance challenging, or even impossible. Some cards feature high rates that require you to devote over half of each minimum payment toward paying the interest charges each month.
Leslie Tayne of the Tayne Law Group in New York advises borrowers struggling with debt that creditors typically offer several options to assist, including hardship plans and workout agreements, which provide financial relief by lowering debt obligations or interest rates and fees, or by delaying bankruptcy filing which has negative repercussions to your credit rating and requires you to repay everything owed back in full.
Tayne recommends being both calm and professional when approaching creditors to negotiate, by doing your research ahead of time and writing a script to use during calls, which can help avoid sounding aggressive or vindictive.
Create a Debt-Management Plan
If you’re struggling to manage multiple debt payments, consider entering into a Debt Management Plan (DMP). A DMP allows you to consolidate multiple balances into one monthly payment through a credit counseling agency; typically a fee will be assessed and distributed accordingly to creditors each month.
A Debt Management Plan can help you stay on track and reduce debt within three to five years. Furthermore, this system encourages punctual payments which could boost both your organization and credit report over time.
Before enrolling in a Debt Management Plan (DMP), make sure you know exactly what’s involved. Most credit counseling agencies charge an upfront, one-time fee as well as a small monthly maintenance fee to manage your accounts. In addition, additional fees may include fees associated with negotiating with creditors (which can include percentage of what you owe, per creditor fees or even per-creditor fees), although you could negotiate concessions directly with them and/or find an agency without such charges. To save money you could negotiate concessions yourself or find one without such fees when dealing with creditors directly.
Make More Than the Minimum Payment
Make it easier to pay down debt by increasing payments beyond the minimum payments. If you find extra funds each month, divide it equally among all cards’ balances by increasing amounts allocated towards each balance.
One way out is transferring a credit card balance onto one with no interest charges (though this will require good credit and often incurs a 3% to 5% balance-transfer fee), so money that was previously going toward paying high-interest charges now goes towards decreasing what you owe and helping to speed up debt reduction.
Some individuals prefer the “debt snowball” method of debt repayment, where you apply as much of your available funds towards paying down your smallest debt quickly and eliminating it swiftly. Others might opt for the more gradual approach known as debt avalanche – paying down each card’s highest interest rate first and eliminating as many debts as quickly as possible. Both approaches can reduce total amounts owed while gradually eliminating your debt altogether.