What's one of the largest issues with credit card debt? Usually, if you are either a first-time borrower or a borrower with bad credit, the borrower has a high interest rate. Consumers who do not follow a budget will most likely pay high interest charges and over time get into a position where they are unable to pay back the money borrowed on the credit card. They then open another credit card and the viscous cycle continues until they end up in collections.
Without an effective budget, consumers end up paying more interest than needed. Interest is just putting your hard earned money into the pocket of someone else's. So, what are some steps you can take to help get out of credit card debt and back on the path to financial freedom?
1. Ask lender to get your credit card rates lowered.
Sometimes all you need to do is call up the lender and ask for a lower interest rate. Sometimes you will qualify, and sometimes you won't, but if you don't ask, the answer's already No. Sometimes they will lower your interest rate by 5% and that could mean thousands of dollars in saved interest over the life of the debt. If you pay your bills on time you're most likely to qualify for a rate reduction.
You can also do a balance transfer from a higher-interest card to a lower-interest or zero-interest card. Be sure to take into consideration the balance transfer fees to determine if the transfer is worth the cost.
2. Order cards and pay them one-by-one
Order your cards by interest rate, with the card that has the highest interest at the top of your list. Start paying the minimum on all of your other credit cards while putting as much as you can towards your highest rate card along with your discretionary funds. Once you have paid off the highest-rate card, take the payment that was going towards that card and apply it to the next highest-rate interest card, and continue doing that one by one, until all the cards are completely paid off.
Using a debt-elimination calendar, such as the one shown below, can help eliminate your credit card debt.
Account consolidation is another way to reduce amount of money paid towards interest over the life of the debt. Although there may be fees associated with this option, it is an option if budgeting seems too difficult and if the option of only making one payment with one interest rate sounds easier to manage. If you're ready to consolidate your loans, request a free debt analysis today.
Once you have either lowered your interest rates, or consolidated your debts, or are in the process of eliminating your debt with a debt-elimination calendar, it's time to put together a plan.