by Laura Ginn
The excitement of making just the minimum monthly payment on your credit card balance only lasts a short while. Millions of people, who carry a balance, discover the danger of minimum payments after they feel the sting of the included rotating interest rate.
According to the latest statistics, the average household today owes $7,837.44 in credit card debt. Such a debt would take about 297 months to pay off, and cost around $11,004.88 in interest, if you only paid the monthly minimum.
Even if you had a legitimate reason for accumulating high-interest debt, your top priority must be to pay it off. Start with a solid debt reduction plan, and stick with it until you are completely debt free.
Below are five smart strategies for eliminating your credit card debt.
Target One Card At A Time
If you owe money on multiple cards, it will take quite a while to wipe out all the debt. It’s hard to see the horizon, and stay motivated, when you have years of credit card payments ahead of you. Give yourself a motivating boost by paying off one credit card as soon as possible.
Target the card with the lowest balance, and put as much money into your payments as you can afford, until you have cleared the balance.
Alternatively, you can target the card with the highest utilization rate (your balance/card’s limit), and pay it off. Clearing that balance will boost your spirits, and your credit score. In other words, clearing your balance will directly impact your credit score.
Negotiate A Lower Interest Rate
Although lenders are usually reluctant to negotiate reduced interest rates, it’s still worth a try. If you have a decent credit score, and have been responsible with your payments and card use, the lender might honor your request. Reducing your interest by one or two percentage points can lead to hundreds of dollars saved every year.
Compare rates, and get offers from competing lenders, to bring to the negotiation meeting. Your current lender might be willing to match the offer of the competing lender.
Note: Your creditor will need to review your credit report before they make a decision, and they could reduce your card’s credit limit, if they don’t like what they see.
Transfer Your Balance
A growing number of consumers are transferring their credit card balances from one card to another, in order to get the best interest rates. While that could potentially lead to hundreds of dollars in savings, there are risks involved, if you don’t correctly plan ahead.
Balance transfers are only effective if you commit to repaying the transferred balance within the introductory low-rate period. That will give you 12 to 30 months, depending on the card. After that, the rates will go up, and you’ll be forced, once again, to pay the high interest rates.
Important: Balance transfer credit cards should only be used for paying off debt, not for making new purchases. So, don’t use the card for shopping, because the low interest rates may not apply to new purchases. Also, most lenders charge a balance transfer fee, so factor that into your costs when you’re comparing cards.
Get A Loan
If you’re falling under the burden of high interest rates, consider borrowing money to pay off your credit cards. Your friends and family may be willing to give you a loan. However, if not, banks and peer-to-peer lenders offer loans with fixed interest rates that are 20 to 30 times lower than credit card rates.
That means you could potentially save $100’s in interest on your debt. If you have excellent credit, and a stable job with a good salary, you could qualify for loans with competitive interest rates.
Pay The Minimum Twice
If you are cash strapped, you can always pay the minimum, but try to make two minimum payments within the same month. Interest is accrued on a daily basis, so earlier payments will reduce your average daily balance, and your monthly interest charges. Make the minimum payments twice a month (every two weeks) until your debt is fully paid off.
Spiraling interest rates make it a challenge to pay off any debt. Ideally, you should not incur it in the first place, but life is all about learning from your mistakes. The tried-and-true methods listed above will help you to develop and secure your battle plan for tackling your credit card debt.
Remember, the most valuable asset in your debt battle, is your unwavering commitment to your financial goals.
Laura Ginn understands that there are differences between reward credit cards, and balance transfer credit cards. To learn more about credit cards, check out the free information provided by uSwitch.com.