If your aim is to pay off higher interest credit cards, the first and maybe hardest step is to avoid adding to your debt. From there, explore plans to low your interest rates, direct extra money to payments, and get expert help if you need it.
From the 2nd quarter of 2015 to Q2 2019, credit card debt in the United State grew 31 percent, according to Experian data. The number of new credit card accounts jumped nearly as much (24 percent) in that time.
If you are one of the many customers overwhelmed by credit card debt at higher interest rates, know that you’ve options and that seeking out guidance means you are on the right track.
Here’re some ways to get rid of high-interest credit cards
Try Paying with Cash
When used wisely, credit cards may help you build a stronger credit score, and can give you access to valuable rewards. But it isn’t wise to use one if you cannot pay off your balance every month. Otherwise, interest will pile up, and you will be at risk of feeling discouraged by a growing balance.
If you are carrying debt, your first course of action should be to pause your credit usage and switch to using cash. This will keep you from going into more debt and it can affect your spending behavior for the best. The physical act of using cash can make you 2nd-guess huge purchases more often than using a credit card would. If you did rather not carry cash, use your debit card instead.
Consider a Credit Card Balance Transfer
A smart way for using a balance transfer is to move credit card debt from a higher interest card to one that provides a promotional zero percent annual percentage rate (APR) period, usually 1 year or longer.
It means you have the opportunity to pay down debt without incurring extra interest, as long as you remove your debt by the time the promotional period ends. You can be charged a balance transfer fee, which is a percentage of the transferred balance, and you will need great and best credit to qualify. Note, too, that you would not be able to move debt between cards issued by a similar financial institution.
But a balance transfer can lead to huge savings. Say you’ve $5,000 in debt on a card at 18 percent APR. If you wanted to pay it off in 1 year, you did pay $458.40 per month and $500.80 in interest. If you transferred the balance to a card with zero percent APR and opted for a card with no balance transfer fee. You did pay $416.67 per month and $0 in interest.
Pay More Than the Minimum Amount Due
To get rid of debt on a fast timeline, it is critical to pay more than the minimum payment your credit card issuer assigns you. Your payment is a fixed amount like $25 or a small percentage of your balance, probably 1-3 percent. Making only that payment will usually keep you in debt for longer than you can prefer.
When you are focused on knocking out debt, paying more helps decrease your principal balance, which, in turn, means you will be charged interest on a low amount. Anything you will pay beyond the minimum will be helpful for you. You can find motivation in calculating how much faster you could pay off your debt if you send a more $25, $50, or more to your balance per month.
Lower Your Expenses
It can feel impossible to pay down debt when you do not have the cash to spare. That is why a crucial step in the payoff procedure is to seem for ways to save money. That can mean tracking expenses for a month and two and identifying areas where you can cut back. For example, if your cellphone bill is one of your expensive recurring expenses, ask your provider if it offers new strategies even prepaid ones, that give you equivalent service for less money.
Another common source of debt is food, so you can consider instituting a plan for regulating how much you spend on dining out. Plan to cook extra meals yourself and minimize what you spend when you do dine out with others. Any money you save from these changes can go into an account you utilize to pay off credit card debt.
If you low your cellphone bill from $80-$60 per month, for example, set up a recurring transfer for $20 per month to pay down the account, and make more credit card payments from there.
Increase Your Income
Aside from reducing expenses, you can add to your income and place that money toward credit cards. Think about tapping into the sharing economy to make more cash through services like Airbnb. Leverage your skills and work as a freelancer or consultant in your free time.
Sell Your Old Stuff
Decluttering gives you the opportunity to streamline and update your space as well as you can apply any money you make to credit card debt. Sell used clothes at local thrift and consignment stores, or online through services such as Posh mark & ThredUp. You can sell used electronics on a marketplace such as Swappa. Miscellaneous items and furniture are great candidates for Facebook Marketplace, Craigslist, and eBay.
Ask for Lower Interest Rates
While it can look intimidating, you can have luck asking your credit card issuer for a low-interest rate. If you have a history of making on-time payments, and you have been a client for many years, you are more probably to get a positive response.
You can offer reasons for your request, including the fact that you are experiencing financial hardship, and mention that you have received provides from competing card issuers at low rates.
If the issuer denies, then ask for a temporary rate drop. This may be a useful alternative if you do not qualify for a balance transfer credit card but you did like to pay off the debt at a low rate over a fixed period of time.
Pay Off High-Interest Credit Cards First
If you’ve debt across multiple credit cards, the balance on the card with the high rate is the costliest to keep. Goal to pay it down first with any more money you save and earn, an approach known as the debt avalanche. Once that balance is gone, you will apply the more amount you paid to the card with the next-high interest rate.