We’ve all heard it. That $15,000 balance on that credit card will take you 35 years to pay off and cost you $18,000 in interest if you only make the minimum payment. Yet, here you are, looking at your own credit card statements and more than one of them shows a balance that is comparable. At this point, it doesn’t matter how it happened and there’s no sense beating yourself up about it – you can fix it and we can help! Here’s some tips on how.
- Target just one card first. If you’re carrying balances on multiple cards, it can be frustrating and overwhelming to try to wipe them all out at the same time. For example, if you have 3 cards with high balances and you pay an extra $100 per month on each of them, the principal balance of each card will be reduced only slightly on each one. It may seem like your attempt is futile (especially if you are still using the cards) and you may just give up.
Instead, stop using the card with the lowest balance and put that $300 per month on that card only and watch how quickly the balance goes down! You can see the results of your efforts more quickly and you will be more apt to continue your mission. When that card is paid off, move to the card with the next lowest balance.
- Transfer your balance. Do this with the card you chose to target first and do your homework. Find a financial institution that offers either 0% or a very low balance transfer rate and calculate the payment for the time the rate is offered. For example: If the institution offer 0% on balance transfers for 24 months and you have a balance of 15,000 (15,000/24 = $625), commit yourself to making the payment of $625 for 2 years and your debt will be eliminated!
You can also look for institutions that offer a percentage of the balance as cash back on your transfer (free money), then put that cash toward your balance for a jumpstart on your payoff mission. That would be $300 toward your payoff on the same $15,000 balance. Be cautious! Be sure the interest rate is lower than what you are currently paying and be sure there is no balance transfer fee.
- Ask your creditors for lower interest rates. Sometimes a simple phone call to the issuer is all it takes to get a reduced rate—provided that you have good credit (a score of 730 or higher) and you are a long-term customer who makes payments on time. You could get a percentage point or two shaved off, which can add up to hundreds of dollars saved annually.
- Refinance the debt with an unsecured loan. The average interest rate on a credit card in 2015 is 15.07%. An unsecured loan (personal loan) rate can cost as little as 9.24% for 24 months. Using the same $15,000 example, your monthly payment would be $686.92, your debt would be paid in full in 24 months and you will have paid $1,486.18 in interest in that 2 years. Making that same payment on the 15.07% credit card would take 26 months to pay it in full and you would have paid $2,627.80 in interest. Refinancing with the personal loan saved you $1,141.62 and your debt was paid off 2 months earlier!
- If you’re really strapped, make two minimum payments each month. Card issuers typically charge interest on a daily basis, so the sooner you make a payment, the faster your average daily balance is reduced, which translates into fewer dollars in interest that you ultimately pay. If you’re on a tight budget, go ahead and pay the minimum due each month, then try to make the same payment again two weeks later. Keep making a payment of the initial minimum-due amount twice a month until your debt is paid off.