Credit Cards

How to Eliminate Your Credit Card Debt for Good

Credit card debt can be one of the most damaging ways to impact your credit score. The more debt you have, the worse off it can be. If you are among the millions of Americans who are trying to raise their credit scores, getting rid of credit card debt is the very first step.

Yet, that is often easier said than done for almost half of all Americans. All of whom are carrying some kind of credit card balance. Credit card debt is near the top of the list of reasons why most people are dealing with poor credit scores.

That is because the average debt per household is just under $16,000. The time to take charge is now. In fact, some analysts are predicting that individuals in their 20’s and 30’s might spend their entire lives trying to pay off credit card debt.

Maybe you are among the millions of people who can’t seem to get their heads above water financially. Thus, it might behoove you to act quickly and follow these easy steps to eliminate credit card debt for good. You will have the peace of mind in knowing that you are debt-free. Plus, you will see a marked improvement in your credit score before too long.

Target the Highest Interest Rates First

You are probably among the millions of Americans who have multiple open credit card accounts. They are contributing to your high debt. If this is the case, the first step toward paying it down is to identify which of your cards has the highest interest rate.

The balance you are carrying on that particular card is only getting worse every month. This is due to your high annual percentage rate (APR). Depending on your creditworthiness, that rate can be as low as around 15% and as high as 30%. There’s no reason to keep paying interest on your credit card balance at those rates. The longer you do it, the higher your debt is going to climb.

Accordingly, you need to take a good look at all of your cards. Find the one that has the highest APR. Then, you should concentrate on putting all of your efforts into paying that down first. However, do not ignore your other cards in the interim.

You will also want to keep making at least the minimum payments on those. That is how to prevent your debt building up even more. This sounds like a challenge, and I’m not going to lie to you. Taking this initial step is going to require some real fiscal discipline.

You will have to devote any extra income you may have to complete the task. This might require some serious tightening of the proverbial belt. Nonetheless, the temporary discomfort of sacrifice will pale in comparison to the relief you will feel when you are no longer under the thumb of crippling debt.

You have now paid off the credit card with the highest balance. It is time to turn your attention to the next credit card. Then, repeat the same process all over again. Polish that off and then turn to the next, and so on. You should keep doing this until you have wiped all your high-interest credit card debt clean.

However, let us say you are just intent on paying down one card in full for the time being. Then, it might make more sense for you to pinpoint the credit card you have with the lowest balance first.

Wiping that debt away will make you feel like you have accomplished something. Additionally, it will motivate you to continue on to the next and pay off credit card debt until there is nothing left!

Put Your Cards Away

It is just common sense that the best and most effective method to bringing down credit card debt is to stop using your cards. That means making more purchases with cash and spending less overall. When you know that card is in your purse or wallet, it is a lot easier to spend money that you really shouldn’t.

Therefore, take those credit cards out of your hands. Instead, stick them somewhere safe. It will go a long way in helping your bring down that debt. Yes, this will take some sheer willpower.

You might feel a little uncomfortable without that fiscal crutch under your arm. Yet, you will certainly be much happier, in the long run. You will be confident that you can’t stumble along the way to financial freedom from debt.

Do not Miss Your Due Dates

As discussed, making the card with the highest rate or lowest balance your main priority as you start to pay off credit card debt. Conversely, you still need to make the payments on your other cards. Missing those will offset all the good work you are doing on that high priority card you are paying down.

Paying late or missing a payment entirely will end up adding more money to the balance on the cards you are not paying on time, This will come in the forms of late fees and interest charges.

Maybe you are not already paying the highest APR. Well, you could be if you miss a payment. That is because most cards carry variable rates that fluctuate. They adjust based on your payment history.

If you miss a due date once, the issuer might let it slide. Conversely, miss it repeatedly and your rate could climb up to that near 30%. That can represent a significant increase in the amount of money that gets tacked on to your credit card balance. Plus, your debt will only get higher, not lower. This is about eliminating your debt, remember?

You can avoid falling into this pitfall. Set up automatic bill payments. That is where the money is withdrawn directly from your account automatically. There’s no need to worry about due dates or missing a payment.

What if you are not financially prepared to pay the bill on time? You could contact your issuer. Request an extension on your bill or a reduction of the minimum payments that are required each month. This can make it easier to pay off what you owe, while still working to pay down the debt that has already been accrued.

Create a Plan

Organization is the key to accomplishing just about anything. The same goes with your credit card debt. Come up with some kind of chart or spreadsheet to help you see all of the numbers that pertain to your debt. This will make it easier to identify what needs to be handled when. Plus, you will see how you are going to achieve your goals.

Your chart should include each active credit account. Additionally, it should have the amount of debt owed on each of them, and the interest rate you are paying. Then it will all be laid out before you in a clear and concise manner. Then, you can begin to make some hard and fast decisions. You need to figure out how to allocate the appropriate funds to paying down each card.

You are also going to want to include due dates and payment information on each of your cards. That data can all be found on your monthly statement. Have you ever read your monthly statement in full? Maybe you only see the part where it says “Past Due” and the increasing high amount listed in bold letters beneath?

If that is the only part of your bill that has garnered your attention, you will want to take a moment to read the rest. That part is where you can find out other important information. This includes any changes that were made to your APR or any additional fees that you are now paying.

Know what is in your statement and what is potentially increasing your debt. It is a great way to help in reducing what you ultimately owe. Surprises can be a lot of fun, except when they’re found on your credit card statement.

Do not be surprised. Read everything that is included in your bill. See if there are ways to reduce the amount you owe each month. That is a good way to work toward eliminating your debt. Maybe you see something that doesn’t gel or you are getting charged high rates. In that case, contact your card issuer and ask them to work with you in reducing what you might owe.

Organization also means knowing what is expected of you by the issuer of each card you own. That means doing something you probably haven’t done yet. Read your user agreement.

I realize it can be a lot of boring legalese and confusing jargon. Nevertheless, there might be some things in there that you weren’t aware of. They are affecting your payment and, ultimately, your credit score.

These rules and policies are directly related to what you are paying every month. Thus, it is good to be fully informed about why you are being charged for certain things. It is much better than being blissfully ignorant.

Credit cards have grown increasingly complex as of late. They tout introductory 0% APRs that expire after six or nine months or two years. They have rewards programs that give you points. Some give cash back on the money you spend.

That is in addition to the litany of fees charged for transferring balances, taking cash advances, and making purchases overseas. You may not know about some of these fees. You would avoid them if only you were aware they existed. Do yourself a big favor. Read the credit card user agreement.

Build a Budget

When you pay down your cards, you will inevitably have some extra money in your pocket. DO NOT spend that money frivolously. Use those additional funds to pay down your remaining cards quicker. You can also help yourself greatly by locating areas in your monthly budget that are taking up too much of your income.

Find ways to save money so that you can pay down debt faster. You will even keep a little cash in your pocket. That could mean getting a less expensive cable package or cutting the cord entirely. You could eat out less or lower your cell phone bill. Any areas that are taking up too much of your hard-earned money can be explored. Once you reduce your costs you can put that money toward reducing your credit card debt.

No Cash Advances

One of the reasons that credit card debt gets so high for some consumers is because they do not use their cards responsibly. It is not just about utilization ratios and missed payments either. Some card users rely on their credit cards for cash advances. This is one of the worst things you can do with a credit card. That is because the costs you are incurring on that money can be extraordinarily high.

When you got to an ATM, you could be charged as a result of using one bank’s ATM card at another bank’s machine. Those fees could total about $3 to $4. It depends upon the banks in question. Sounds high just to withdraw your money, right?

Try paying 30% for the privilege of taking money out of your card. If you pull out $60 at a competing bank’s ATM, it could cost you $4. Get a cash advance of $60 on your Visa and it could run you $18 for the service. That is not even taking into account the applicable cash advance fees. Those could be another $3 to $4 or a percentage of the money you withdraw.

All of those costs are getting added to your credit card balance. Additionally, you are going to need to pay that $60 back after all of those fees are incurred. Therefore, avoid getting any cash advances unless it is an incredibly dire emergency of life or death. Borrow from a friend or family member first.

Making Minimum Payments

We’ve talked about making your minimum payments on other cards while working to pay down those with the highest interest. Every payment you make is going to go toward lowering your balance. This, in turn, means your interest charges are lowered as well.

Though, keep in mind that this strategy is only good while you are taking care of cards that must be paid down immediately. You do not want to continue paying just your monthly payments until the rest of your cards are paid down. That is because you will not be doing much to eliminate your debt. Instead, you will be maintaining at best.

Too many customers get lulled into a feeling of comfort and complacency. That is because they know that the credit card companies only want a small monthly payment. You may think your issuer has your interests at heart. After all, they know you can only manage to pay $15 or $25 or $30 a month to pay toward your balance.

Unfortunately, the card companies have their own interest at heart, not yours. They let you pay a minimum each month. In doing so you are basically paying the interest while the balance remains largely untouched. Think about it. Your APR is triggered each month you maintain a balance on the card.

That debt is the card company’s way of making extra money off of you. For every month you have a balance they can charge you for the privilege. Sure, a balance of $1000 will yield a lesser interest charge than say $1500. However, you are STILL PAYING INTEREST.

That interest charge might end being only $12 or $15 or $20. Nonetheless, it is money you owe. It is being added to your debt. You pay the minimum each month. Tell me how much it is. Is it $12 to $20? Well, congratulations, all you are doing is paying down the interest. Your balance is unpaid and remains unpaid. That means they can charge you interest next month. Thus, the minimum payment will cover it and the cycle continues.

Only make your minimum payment while you are paying off high interest or low balance cards in full. This will actually drive down your debt. Once you have cleared one card completely, stop paying the minimums on the next one. Pay it down in earnest. The goal is to eliminate credit card debt. It is not to keep it increasing.

Transferring Balances

We just discussed how interest rates can wreak havoc on your debt and the efforts to pay it down. Any way to reduce or eliminate that interest is going to be beneficial to your cause. A balance transfer might be your best bet.

Do a little research. See if there are any cards you can apply for that offer 0% introductory APRs. Perhaps the card you already own has a 0% promotional rate for certain customers. If you do open a new card for this very purpose, only transfer the balance to that card.

Do not spend anything on it. Now you can pay down your debt and not just the interest payments that keep getting added. Yet, keep in mind that some transfers come with a fee. You might need to weigh the two options as to what is a lesser expense when all things are considered.

Debt Consolidation

This is always an option. It is especially the case if you are dealing with a significant amount of debt with your cards and other obligations. By taking this step, you basically take out a loan from any number of potential lenders. Those funds are then used to pay everything off in full.

Once that happens you are no longer paying a variety of bills with monthly amounts. Instead, you have one payment to one creditor. It is reimbursing them for the money you borrowed.

This has its own advantages and drawbacks. You could be dealing with a higher interest rate and larger monthly payments. However, your cards are paid off. Additionally, you are not incurring multiple interest charges on various accounts. Everything you owe is with one lender. Therefore, you can negotiate a payment that is affordable.

Keep Those Cards Open

What happens when you have paid off all that credit card debt? You may be tempted to close the card or cards that you worked so hard to pay down. Do not do it because that can end up damaging your credit score. That is even after you have made all those strides toward eliminating your debt.

This is because your credit score is partly calculated based on your debt utilization ratio. Suppose you have three or four open accounts. Your creditworthiness is determined based on the ratio of debt versus credit limit along those cards. If you close one of them, that will affect your credit utilization ratio and impact your score. Fewer cards mean less credit.

However, keeping the card open keeps it active. It is not enough to just keep the account open. You have to show some activity on those cards. That doesn’t mean you should start racking up charges left and right either.

You want to remain responsible and frugal with your cards. Therefore, the best plan of attack is to put one or two routine charges on them and pay them off on time. Set one for the Netflix membership, another for your cell phone bill, and so on. These are easy to pay charges. They will keep the cards active and your credit utilization ratios low. Keep those cards active and your credit score will rise as well.

Our Final Thoughts

Eliminating credit card debt is imperative. Once you have it paid down you can work to being building credit from scratch since you will have a clean slate. These steps will provide you with an opportunity to manage your credit properly and pay down everything in a timely manner.

You can also look for other ways to lower what you owe. Try to get bank fees reversed or checking your statements for any fraudulent activity.

The bottom line is you need to get aggressive about lowering your debt. Finding any opportunities to save money on those balances will be a big help to you.

 

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