Interest Charges And Minimum Payments On Your Credit Cards
Are you only making the minimum payment on your credit cards? Sometimes, the minimum payment is all you can afford, but its also one of the biggest risks associated with credit card debt.
Your minimum payment is usually only three to 5% of your total balance or a flat rate of 10 dollars, and a very affordable way to keep your account in good standing. Unfortunately, it will end up costing you more money in the end.
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Debt Relief Programs Cant Make Your Debt Disappear
Commercials full of lavish promises aside, debt relief programs cant just make your debt disappear. That said, in some circumstances, especially when you enlist the help of a good debt relief company, you may see a decrease in your overall balance, whether through a lowered interest rate or settlement resolution.
Is Credit Card Debt Consolidation A Good Idea
The goal of credit card debt consolidation usually is to roll your high-interest credit card debts into one easy payment with a lower interest rate. If anything else, it provides a clear path to getting debt-free as the terms tend to have a fixed paydown period. This more structured feel may be exactly what you need to be on your way to being debt-free, even if there are some setup or origination fees.
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Equity In Owned Vehicles
If you have a vehicle that is paid off or has a low balance in comparison to what it is worth, this could be an interesting route to take. Taking a loan out using your vehicle as collateral, would allow you to pay down your other creditors. In this situation, you gain the ability to receive an auto loan rate which is typically much lower than an unsecured personal loan.
The downside here would be a limitation of the loan being capped at the value of the vehicle. Also, when carrying an auto loan, most lenders require full auto insurance coverage on the vehicle, which could increase the monthly expenses if usually carrying PLPD. That said, this is another way to leverage an asset to obtain a lower loan rate.
Ask Questions About The Credit Card Relief Packages They Offer
While your credit card company may offer up one or more options, have a list of questions prepared in advance. You want to make sure youre completely comfortable with the terms before you agree to these options.
Here are key questions to ask:
- If I cant make my payment as a result of the coronavirus pandemic, do you have a financial relief program?
- Are there fees associated with these options?
- If Im able to defer or lower my monthly payments, will interest continue to accrue during this relief period?
- How long does the relief period last and when will I need to start repaying my bill?
- What happens if my financial situation hasnt changed once the period ends? Is there an option to reevaluate?
- What information will be reported to the credit reporting agencies?
Note: that the recently passed Coronavirus Aid, Relief, and Economic Security Act places special requirements on companies that report your payment information to credit reporting agencies if they provide payment relief due to the coronavirus pandemic.
- Will I lose the ability to charge anything to my card if I enroll or request relief?
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Pay Down Credit Card Debt Faster
One surefire way to improve your debt situation is to follow one of two debt acceleration strategies: debt avalanche and debt snowball.
With debt avalanche, you attempt to repay your debts that have the highest interest rates first, being that these are the most costly debts. The debt avalanche approach will gradually get you out of debt and save you the most money on interest payments.
Here, you select a single credit card debt to repay first the credit card with the highest interest rate. Then, pay more than the monthly minimum due on this debt until youve wiped the slate clean. Next, start tackling the credit card debt with the next highest rate of interest, and so on, until all your credit card debts are paid off.
With debt snowball, you give priority to credit card debt repayment per the smallest to highest outstanding debt balance. The trick here is that you contribute the maximum you can afford each month toward that balance, first paying off the smallest balance and then focusing on the next smallest balance, and so on. Think of it like a snowball that builds momentum. Once your card with the lowest debt is fully repaid, you will devote the minimum payment you were making on that old debt to the next-smallest credit card balance due.
Consolidating Credit Card Debt Could Help Simplify And Lower Your Monthly Payments As You Work To Become Debt
Consolidating credit card debt is when you combine multiple credit card balances into a single monthly payment that ideally has a lower interest rate than what youre currently paying.
But consolidating your debt takes time, and many methods require an application process to see whether youre approved first, which usually results in a hard credit inquiry that can cause your credit scores to drop a few points.
To help you decide if credit card consolidation is right for you, here are several methods to consider.
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Your Creditor Can Also Sell Your Outstanding Account To A Collection Agency Or Debt Purchasing Firm
The creditor that originally provided you with goods, services, or credit can be described as your original creditor. It is possible to have a creditor who is not your original creditor. This situation arises if your original creditor sells your outstanding account to another firm. In the event that your outstanding account is sold, the debt buyer steps into the shoes of your original creditor.
As a general rule, accounts outstanding for less than six months are not sold. And, the major chartered banks in Canada rarely sell their outstanding accounts, regardless of how long the accounts remain unpaid.
If you owe monies to a non-bank creditor, the odds that your outstanding account will be sold typically increase as your account ages. A handful of creditors in Canada sell their accounts when they are only six months in default. However, the majority of accounts in Canada that are sold to a debt buyer are more than three years old.
Unpaid consumer accounts are a commodity like fruit: the older the accounts, the less they are worth. When a creditor sells debt that is more than three years old, the debt might be sold for less than a penny on the dollar.
There are two categories of debt buyers:
- Collection agencies
- Debt purchasing firms
Some collection agencies, aside from their primary business of collecting accounts on behalf of other creditors, also purchase inventories of overdue accounts.
Why Is Credit Card Debt So Difficult To Manage
Credit cards are a revolving type of credit. A credit card company extends you a credit line that you can borrow against as needed. Each month, you must make a minimum required payment equal to a small percentage of the current balance you owe.This creates the first challenge with credit card debt, that the payments can be unpredictable. The more you charge, the more you must pay each month. For most people, credit card debt is easy to manage when the balances are low. When the balances get high, the bills begin to eat away at your income, leaving you less money to save and cover emergencies. You end up in a cycle where you live paycheque-to-paycheque and every emergency expense goes on a credit card. compared to other forms of credit. Those high rates mean that a large percentage of each payment you make gets used to cover accrued monthly interest charges. At an average interest rate of 19.99 percent, more than half of every minimum payment you make covers interest.The result is that it takes a long time to pay a balance down with minimum payments. When a credit card balance is high, it can take years or even decades to pay the balance off. Even if you pay more than the minimum, it can be difficult to get ahead.
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Pay More Than Minimum
Credit card issuers give you a monthly minimum payment, often 2% of the balance. Remember, though: Banks make money off the interest they charge each billing period, so the longer it takes you to pay, the more money they make. Look on your credit card bill for a Minimum Payment Warning, which will have a table showing how long it would take to pay off your balance if you paid only minimums and how much interest you’d pay.
Enroll In A Debt Management Plan
If you cannot get out of debt on your own effectively, then your next step should be to get credit counselling. A trained credit counsellor will evaluate your debts, credit, and budget to help you identify the best debt solution for your needs.So if you can afford to pay back everything you owe but youll need some support, the credit counsellor can help you enroll in a debt management plan. This is a professionally supported debt repayment plan administered by the credit counselling organization. They work with you to find a monthly payment that you can afford. Then they work with your creditors to reduce or eliminate the interest charges applied to your balances.You make one monthly payment to the credit counselling service that they distribute to your creditors every month as agreed.
| Advantages | |
|---|---|
| You pay back everything you owe in 36-60 payments. | You need professional help to set up a debt management plan. |
| It reduces your total credit card payments by up to 30-50 percent. | You cant use your credit cards once they are enrolled in the program. |
| Your interest rates are reduced or, in most cases, eliminated. | Each credit card gets closed as it is paid off. |
| You can qualify regardless of how low your credit score is or how much you owe. | The plan will be reported on your credit for two years after you complete the program. |
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Chapter: 4types Of Debt
There are three types of debt: the good, the bad, and the ugly. While good debt might sound like an oxymoron, when it comes to your credit rating, its absolutely true. Good debt includes mortgages and student loans .
On the other hand, bad debt includes credit cards …
On the other hand, bad debt includes and auto loans . Even worse are payday loans, which have extremely high interest rates and high penalties for non-payment. If you need bad credit debt helpor assistance with those ugly payday loanswere here for you.
Not Sure What To Do Next
- Request a Free Consultation
- Give us five minutes on the phone
- Let us give you some free advice, explain your options, and do our best to guide you in the right direction
We dont sell our services. We simply assist you to understand your options and support you in deciding what path is best for you.
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How To Determine If You Should Negotiate Your Debt
If you have credit card debt that you are looking to settle with the credit card company, consider a few factors first. First, explore other options like credit counseling or bankruptcy. Either of those may be a better fit for your specific situation.
If you are not already several months behind in your payments, the credit card company may not be willing to enter into debt negotiation, so you might need to consider other options. The credit card company will also want to make sure that you have the financial ability to pay any settlement. This could be a lump sum or enough monthly cash flow to fulfill your settlement obligations.
Using A Debt Relief Company Can Make The Process Easier
While it is technically possible to utilize most credit card debt relief options on your own, the process can often be frustrating for those of us who are not financial professionals. Credit card issuers are notoriously unresponsive to consumers looking for lower interest rates, payment plans, or debt settlement options.
A good debt relief company, on the other hand, will have the resources and know-how to negotiate with stubborn creditors for the best results. And, just as importantly, a quality company will have the means to keep on top of the issuers and collection agencies throughout the process, ensuring everything goes smoothly from start to finish.
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Is A Debt Management Plan A Good Idea
Whether a debt management plan is a good idea depends on your situation. They dont help everyone. A successful debt management plan requires you to make regular, timely payments, and can take 48 months or more to complete. You might have to agree not to apply for or use any more credit until the plan is finished. No legitimate credit counselor will recommend a debt management plan without carefully reviewing your finances.
Whats A Credit Counseling Agencies Do To Help
A reputable credit counseling organization can give you advice on managing your money and debts, help you develop a budget, offer you free educational materials and workshops, and help you make a plan to repay your debt. Its counselors are certified and trained in credit issues, money and debt management, and budgeting.
Good credit counselors spend time discussing your entire financial situation with you before coming up with a personalized plan to solve your money problems. Your first counseling session will typically last an hour, with an offer of follow-up sessions. Good counselors wont promise to fix all your problems or ask you to pay a lot of money before doing anything.
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How To Pay Off A Payday Loan
The best way to repay a payday loan is to speak to the lender if youre in difficulties, and try to arrange for a payment plan that is manageable.
Also, look to repay the loan through other means, including using a credit card or a bank loan.
Paying a loan with a loan might not seem sensible, but you should be able to clear the high interest payday loan quicker, leaving you owing less on your alternative form of credit.
If you are seriously in debt and have exhausted all options, take advice on whether to arrange a debt settlement or to file for bankruptcy
Is Credit Card Refinancing Better Than Credit Card Debt Consolidation Loans
A consolidation loan would come with a fixed rate, consistent month-to-month payment and a defined maturity date of the loan. While there may be an origination fee, all of the guesswork is taken out as everything is determined at the time the loan is taken out. The rate would likely be higher than a promotional rate from a credit card, but if the balance is being carried beyond this time period, the consolidation loan rate would likely be less than the average APR from the credit card.
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Settling Debt For Less Than You Owe
If you cannot afford to pay off your credit card debt in full or manage minimum required payments, then the next option is to settle your debts for less than you owe. You pay a percentage of what you owe, and the creditor agrees to discharge the remaining balance.There are two ways to settle your debt:
The recommended method to settle debt is with a Consumer Proposal through a Licensed Insolvency Trustee. The trustee will determine how much of your debt you can reasonably afford to repay. Then they will set up a repayment plan. You make monthly payments to the trustee that they distribute to your creditors. Once you complete the payments, the remaining balances are discharged.With a debt settlement program, a private company will help you find a monthly payment you can afford. They keep those payments in an account until there is enough money to make settlement offers to your creditors. They offer your creditors a percentage of what you owe and if the creditor agrees, the money is paid out. Then the creditor discharges the remaining balance.
Before Taking Out A Consolidation Loan
Get free support from anonprofit credit counselor. can advise you on how to manage your money and pay off your debts, so you can better avoid issues in the future.
Get to the bottom of why youre in debt. Its important to understand why you are in debt. If you have accrued a lot of debt because youre spending more than youre earning, a debt consolidation loan probably wont help you get out of debt unless you reduce your spending or increase your income.
Make a budget. Figure out if you can pay off your existing debt by adjusting the way you spend for a period of time.
Tryreaching out to your individual creditors to see if they will agree to lower your payments.Some creditors might be willing to accept lower minimum monthly payments, waive certain fees, reduce your interest rate, or change your monthly due date to match up better to when you get paid, to help you pay back your debt.
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