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***Disclaimer – I’m not a financial advisor, just a normal guy with financial success. The information shared here is purely for educational purposes only***
Are you struggling with credit card and is fed up with the interest that comes with it every month? You should be, credit card interests are like shark loan interests (it adds interest faster than you can pay it off). It’s crippling and can become unmanageable if it’s not dealt with quickly. Here are some tips to help you paid it down or get rid of entirely.
Do an Audit on Your Expenses
If you are serious about your financial health and want to deal with credit card debt, the first things you have to do it look into all your expenses and see where you can cut down on unnecessary spending. If there is unnecessary spending, get rid of it as much as you can.
Even for necessary spending, there may be ways you can cut down on those expenses as well. If you want more tips on how to cut down on spending, check out our other article about how to survive intimes of high inflation (there are a lot of useful tips for saving money or making some side money in that article.
The point is tried your hardest to squeeze out every dollar that you can and use that towards paying off your credit card debt. We will look into why it’s so important do that in a minute.
Come Up With a Plan
Now that you know how much you are spending each month, you want to start thinking about how to organize what’s left of your income after your expenses. Ideally you’ll want to save 10-15% (or more) into your bank account for emergency and the rest can go towards paying down the credit card debt.
If you have a little bit of saving and your debt is pretty big, it may be a better option to just save a little bit and have the rest go towards paying down the debt. (*Note: don’t ever just pay the minimum or your debt will only get bigger and bigger till the interest each month is much bigger than your minimum payment).
So these are things you want to think about, do you need to save some on the side for emergency or is paying down the debt faster more important because the interest only is eating away your opportunity to save money and invest. Here are some options to better tackle your credit card debt monster.
Get a Loan to Pay-off Your Credit Card Debt
If you have credit card balances on multiple cards and they all have different interest rates, this might be a great option for you. Let’s say you have $3,000 balance on one card at 20% interest, $2,000 balance on another card at 25% interest, and $5,000 balance on another card at 28% interest, your total balance is $10,000 and interest each month would be (($3,000 * 0.2 [20% interest]) / 12 (12 months)) = $50 the first month, (($2,000*.25 [25% interest]) / 12 (12 months)) = ~$42 the first month, and (($5,000*(0.28 [28% interest] / 12 (12 months)) = ~$117 the first month. So between the three cards, your first month of interest will add $209 to your $10,000 balance.
If you only pay the $100 minimum balance, your balance would go up to $10,109 and it will only continue to balloon from there. So let me reiterate this point, never just pay the minimum if you are serious about getting rid of this.
The advantage of getting a loan to pay off your credit card is at least twofold. One, you would only have to pay one debt so you have effectively consolidated your debt. This will save you time and help you stay more organized.
Two, most loans’ interest will be way below the interest that credit card charges. If you have decent credit, you should be able to get personal loans at below 10% interest rates, whereas the examples we used between the three cards average out to be 24% interest (which is not uncommon for credit cards), so you will able to save significantly on paying interest.
Debt Consolidation Service
If you don’t know how to go about tackling your credit card debts, you can also consider employing a debt consolidation service. They may even be able to negotiate on your behalf and lower the interest on your credit card debt and/or consolidate your debt into one loan.
If dealing with credit card debt is not something that you are comfortable doing, you may be better off leaving it to the professionals and just focusing on paying down the debt balance as quickly as you can.
Get a 0% APR Credit Card
If you are comfortable tackling the credit card debt yourself, I would suggest getting 0% APR credit card if you have decent credit. If your credit is not that great, your best option might be to go with debt consolidation services.
There are many credit cards that offer initial period of 0% APR for transfer balance or purchase, some offer terms of 12 months, 15 months, 18 months, 21 months or even up to 24 months. *Note – typical balance transfer fee is 3% and some can charge as much as 5%, but you don’t accrue any additional interest after that initial charge.
So if you have a $10,000 credit card balance and you do a balance transfer to a new card, it would tack on $300 as a transfer fee to your balance. But your balance would stop accruing interest for the remainder of the terms (read the fine print too on what happens if you miss the minimum payment, like would interest start accruing again).
If you go this route, you will want to pay down your balance as aggressively as you possibly can during the 0% APR promotional period so that you won’t have to pay any more interest when the promotion ends.
Conclusion
Credit card debt is one of the most potentially crippling debts to the financial well-being of a person or family. I highly recommend taking care of it as quickly as possible whether you get professional help or taking care of it yourself. The reason is simple, it’s hard to get 20% return in your investment portfolio in one year, but it sure is easy to get that 20% (or more) interest added unto your credit card balance. Get rid of this debt and allow yourself a chance to build long-term healthy wealth.
***Please feel free to reach out to us at [email protected] if you want some free advice on your finance***
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