Use The Snowball Methoda Highly Motivating And Popular Debt Reduction Strategy
The debt snowball method is another method a lot of people like to use to get out debt by paying off small credit card balances first. This can have a powerful psychological effect on many people because they can feel like theyre making progress sooner. This can be very encouraging and provides a lot of people with motivation to keep paying down their debt. Heres how it works:
1. Use any extra money you can come up with to pay off your credit card with the smallest balance first . Paying off this card will give you a quick win and a sense of satisfaction and accomplishment.
2. Dont pocket the minimum monthly payment that you used to pay every month on your smallest credit card. Instead, start paying down your next smallest credit card balance with that money. You should of course throw all the extra money you can at this debt to get it paid off as quickly as possible, but the key is to free up money as you pay off your smallest credit card balances first. The monthly payments you free up will help you pay down the next smallest credit card even faster.
3. Repeat the process: focus on paying off your next smallest credit card balance using the money freed up from the smaller cards you paid off earlier. With the snowballing monthly payment this method creates, your debts will get paid down faster and faster as you go, and youll get more and more motivated as you pay off one card after another.
What Is The Best Way To Pay Off Credit Cards Fast
The fastest way to pay off credit card debt is to focus more of your payment toward the principal and less toward interest. Thats where a 0% intro rate balance transfer card comes in. Even if you pay the same amount each month, your debt will be reduced quicker with a 0% card since the entire amount goes toward the principal amount owed.
The avalanche method prioritizes your debts by interest rate, starting with the highest APR first.
That said, there are two widely accepted techniques for paying off credit cards that you should consider. One is referred to as the debt avalanche method, which focuses on paying off high interest cards first, and the other is the debt snowball method that prioritizes paying off the smallest debts first.
Using a 0% balance transfer card, you can create a hybrid of the debt avalanche method that transfers the balances on high interest credit cards to the new 0% card. This lets you reduce the overall interest you pay and direct more of your money toward principal repayment. Heres an example of how that might work.
The snowball method prioritizes your debts by balance, starting with the smallest balance first.
Lets say you have three credit cards with balances of $3,500, $4,000, and $2,200, respectively. Well call them Card 1, Card 2, and Card 3.
The interest rates on the cards are 23% on Card 1, 16% on Card 2, and 21% on Card 3.
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If you are struggling to make your monthly credit card payment, or cant catch up with your past-due payments, we may have solutions for you. The sooner you contact us, the sooner we can determine what help may be available. We will review the nature of your hardship and your financial information to determine what payment solutions you may qualify for.
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Make Your Minimum Payment If Possible
This may be difficult guidance if youve lost your income and youre having to prioritize your bills. There may be cases, though, where you get financial assistance from your credit card companies, but your interest continues to accrue. If this is the case, making the minimum paymentand making it on timecould help ease the burden later on.
A Few Debt Relief Options You Want To Avoid
The three options outlined above are not the only options that consumers can use. There are other ways to find debt relief we just dont recommend them. At Consolidated Credit, we promote a do no harm strategy when it comes to debt relief. In other words, your debt solution should not put you in a worse position than when you started.
Each of the solutions above when used correctly can eliminate your debt without causing credit damage or making your financial situation worse. Other solutions can decrease your credit score or negatively impact your long-term financial plan.
For instance, you can:
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How To Pay Off Credit Card Debt In 5 Different Ways
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If youre struggling to pay off credit card debt, youre definitely not alone. A recent report from Lending Tree showed that Americans owed a collective $925 billion on their credit cards at last count, and the average unpaid balance per borrower works out to $6,569.
Even worse, the average credit card interest rate or annual percentage rate is currently 16.27%. This means the average consumer with credit card debt has a large percentage of their payment going to interest charges. It also means that, for consumers paying this rate or even higher, paying off credit card debt is more difficult than it needs to be.
Fortunately, there are plenty of strategies you can use to manage debt and pay off your credit cards once and for all. So if youre struggling with debt you cant seem to get rid of, consider one of the following debt repayment strategies that are proven to work.
Lock But Don’t Close Your Credit Card Accounts
Debt reduction only works if you stop adding to the balance with new purchases. To avoid overspending or accumulating additional debt, you can request your account to be locked or frozen. This will keep your account open, but you won’t be able to use the card to make purchases until it is unlocked. This will help three key elements of your credit score:
- Your the total amount of debt you owe divided by the amount of credit account limits you have open to you will stay low as you pay off your debts and keep your existing credit lines open.
- Your average account age the average time you have had each of your credit lines open grows with every month you keep an account open.
- Your credit mix how many different lines of credit you have open stays high when you have a diverse set of open credit accounts.
Make sure your paid-off accounts aren’t incurring fees for a zero balance, and then check your credit score: chances are it’s gone up and you now qualify for much better terms on future credit.
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Speak With Your Credit Card Company
While youre at it, contact your credit card companies about lowering your credit card interest rates, waiving fees, or both. Competition among lenders for reliable borrowers is fierce. As a result, says a year-old study by CreditCards.com, some 80% of customers who request a break get one especially if they threaten to stop using their cards, and shift their balances to one of those zero-interest cards mentioned above.
Some credit card programs offer hardship programs, particularly to customers with a good payment record. Such programs provide relief when situations like losing your job or health setbacks hurt your ability to pay. Relief might include lower interest or fee waivers.
If Youre Offered A Repayment Plan
You might get a letter from your credit card company offering you a repayment plan. Theyll do this if you’ve been paying off your debt for 36 months or more.
The letter will explain how you can pay off your debt in 4 years. If you don’t agree to the plan, your credit card company will stop your card.
If you can’t pay what the letter suggests, contact the credit card company and tell them how much you can pay – or tell them if you cant pay at all. If theyre still charging you interest or fees, ask them to stop.
If you dont think your credit card company are being reasonable, you should complain to them. If you need help doing this, contact the Financial Ombudsman on their website.
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Consolidate With A Personal Loan
Another way to possibly reduce the amount of ongoing interest payments on your credit card debt is to consolidate your debt into a lower-interest personal loan. After taking out a personal loan that has a lower interest rate than your credit cards, you can use the loan to pay off your credit card debt giving you a chance to pay it down faster with one simplified monthly payment.
As with credit card balance transfers, consolidating credit card debt into a personal loan wont reduce the amount you owe, but may boost your effort to get the debt under control.
Learn about consolidating credit card debt.
Option : Consolidate The Debt With A Low
Like a balance transfer, a personal debt consolidation loan is usually only a viable solution for consumers who have a good credit score. The higher you score, the lower the interest rate you can qualify for on the loan. APR of 5% is ideal, but anything below 10% may be enough to provide the relief you need. If you cant qualify for a rate below 10%, look for other options.
How It Works:
Essentially, you use the money from the loan to pay off your credit card balances and other debts. You can pay off things like medical bills, too.
When using this option, you want a loan with a term of five years or less. Any more than that means your total repayment costs will be too high. Just keep in mind that a shorter term means higher monthly payments. Calculate carefully to make sure you can afford the payments.
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Best Cards To Pay Off Credit Card Debt
If the idea of using a credit card to pay off credit card debt seems counterintuitive, consider this: A credit card with a long 0% introductory interest rate period lets you direct more of your money toward paying down the principal balance instead of interest. That means you may be able to pay off your debt sooner than you otherwise would.
Here are some of the cards we found that offer long intro-rate periods:
Live Within Your Means
For Curtis, that meant not using her credit cards for five years. She spent whatever she had in her checking account and never went beyond that. And it should be noted that once Curtis downsized apartments, she didnt have much else to cut back on. She was driving a 12-year-old car. She didnt have cable. I was already doing the things people tell you to do, Curtis says. Still, while the debt relief non-profit divided up her money among the credit cards, Curtis made sure she didnt self-sabotage herself by living beyond her means.
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Best Cards To Pay Off Bills And Other Debts
If youre looking for a way out from under a pile of bills and other debts, a card with an extended 0% APR period may just be the ticket. Whether were talking about student loans, medical bills, a car loan, home equity loan, or any type of personal loan a chunk of what you pay each month goes toward interest charges.
Here are some of the cards we found that can help you implement a solid debt-payoff plan:
Make sure the card you choose doesnt charge deffered interest on any outstanding balance once the intro period expires.
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Beware Of Debt Settlement Scams
Some companies offering debt settlement programs may engage in deception and fail to deliver on the promises they make for example, promises or guarantees to settle all your credit card debts for, say, 30 to 60 percent of the amount you owe. Other companies may try to collect their own fees from you before they have settled any of your debts a practice prohibited under the FTCs Telemarketing Sales Rule for companies engaged in telemarketing these services. Some fail to explain the risks associated with their programs: for example, that many consumers drop out without settling their debts, that consumers credit reports may suffer, or that debt collectors may continue to call you.Avoid doing business with any company that promises to settle your debt if the company:
- charges any fees before it settles your debts
- touts a “new government program” to bail out personal credit card debt
- guarantees it can make your unsecured debt go away
- tells you to stop communicating with your creditors, but doesnt explain the serious consequences
- tells you it can stop all debt collection calls and lawsuits
- guarantees that your unsecured debts can be paid off for pennies on the dollar
Why Credit Card Companies Negotiate Debt
When finances get tight, credit card payments are often one of the first bills people let slide. After all, credit card debt is unsecured. If you dont pay your auto loan or your mortgage, your car or house could be at risk. The same isnt true with credit cards.
Thats not to say that falling behind on credit card payments isnt dangerous. When you pay any bill late, credit card bills included, you may damage your credit. Credit problems can haunt you for years. Plus, if you default on a credit card bill, theres a chance that the bank might sue you, and that leaves you vulnerable to more potential problems.
Credit card issuers are aware that your unsecured credit card debt may be at the bottom of your priority list if youre in a financial bind. When you fall behind on a credit card bill, the banks priorities may shift. Rather than risk you ignoring debt or filing for bankruptcy, a card issuer may be willing to consider negotiating credit card debt so that it gets back some of its money rather than nothing.
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How To Pay Off Credit Card Debt
Using credit cards regularly can be a great way to build your credit history and take advantage of rewards and benefits along the way. But overspending and unexpected financial challenges can result in a mountain of credit card debt.
You can start paying off your credit card debt by tallying up how much you owe and listing the balance and interest rate for each card. Once you have an idea of what you’re dealing with, here are a few different strategies you can use to start paying down your credit card debt.
Consequences: Debt Collectors Lawsuits & Garnishments
Listen, it happens. An emergency expense pops up. You get waylaid by a medical emergency or natural disaster. The federal government shuts down for more than a month. Or maybe you simply overshot your budget. Whatever the reason, nothing good comes from failing to pay credit card bills. Its all there in your issuers agreement.
For starters: Once theyve acquired the rights to your debt, collection agencies will pursue you. Its what they do.
While they are limited by law from outright harassment, threats or making false statements, collection agencies will be persistent, to a point, contacting you in a variety of ways: telephone, text, email, regular mail until you tell them, in writing, to knock it off. A cease-and-desist letter sent via certified mail is the best way to stop communications.
After that, you likely will hear from them only twice: Once to tell you theyll stop making contact, and once to tell you theyve filed suit in an attempt to recover the debt.
If you do receive a court summons, put it on your calendar. Failing to appear for a court date means you automatically lose.
If the card issuer or collection agency wins a judgment at court that is, the judge orders you to pay up the result will be reported to the credit bureaus, sinking your credit score.
Avoid for-profit debt-relief companies, and run if you hear any of the following:
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