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:
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?
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.
How To Use This Calculator
For each credit card you have, enter the current balance, the annual percentage rate and your monthly payment. When you enter the balance and APR, an estimated minimum payment will automatically show up in the third field, but you can change it based on your actual payment amount.
When you click the Calculate button, youll see several things to help inform your debt payoff strategy, including:
- The month and year youll be debt-free
- The number of payments youll need to make
- Total interest youll pay
- Total payment amount, including interest and principal
You can also click on the Payment Schedule tab to see exactly how much of each payment will go toward interest and how much will go toward paying down your balance.
Remember, you can add multiple credit cards to the calculator. And as you define your strategy for eliminating credit card debt, you can enter different payment amounts to see how much time and money youll save.
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.
What Is The Best Way To Pay Your Credit Card Bill
The best way to pay your credit card bill is by paying the statement balance on your credit bill . Doing so will allow you to avoid incurring any interest or fees.
In case you weren’t aware, you do not automatically pay interest simply by having a credit card. You only pay interest if you do not pay the full bill each month by the due date. If you pay the statement balance by the due date, there’s no interest to pay.
You could alternatively pay your current balance, which will be higher than your statement balance since it includes charges from the current billing cycle. Doing so will .
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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.
Is It Better To Pay In Full Or Carry A Small Balance
Consumers with excellent credit scores almost universally have in the single digits. So, keep that in mind. I would not suggest you continue to just pay a little more than the minimum on your cards. This is going to cost you more in interest payments and wont have much of an immediate impact on your score.
The bigger question may be: What happens after you pay down your cards? See how much you will be able to reduce your balances using half your windfall. If you can drive your balances below 15% of your credit lines, Id stop there and use the other half to establish an emergency fund.
Without an emergency fund, the next big expense may put you back in the position of using your cards to pay for it and then carrying a big balance from month to month. This is both expensive and bad for your score. At 15% or less, your balance wont hurt your score and youll have a cash cushion to handle emergencies.
Tip: Using a credit card as an emergency fund can take a toll on your finances and your credit, especially if youre forced to make a big purchase. You could incur costly interest charges and be stuck with a high credit utilization ratio until youre able to pay it down.
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How To Request Help From Your Credit Card Companies If Youve Been Impacted By The Coronavirus Pandemic
Missing a payment on your credit card or paying it late can result in fees or added interest, but it can also have a negative impact on your credit score. This is why its important to contact your credit card companies immediately if you know you cant pay your bill.
Here are important steps to requesting relief.
Good Ways To Find Relief Versus Bad Ways
The right debt relief solution will help you reach zero without creating new financial risks or damaging your credit. When it comes to bad ways to seek debt relief, there may be some circumstances where using one of these solutions would be the best option. However, you should exhaust every other option first before you consider these last resorts.
|Good Ways to Find Debt Relief||Bad Ways to Find Debt Relief|
On the other hand, if you still want to try paying off the debt with regular payments, follow the steps below. They will increase your chances for success.
Your Credit Card Debt Questions Answered
Your credit utilization ratio measures the amount of credit youre using compared to your cards credit limit. If you dont carry a balance, your credit utilization is 0. A high utilization rate may indicate youll have a hard time paying your credit card balance on time, so a lower utilization rate is better for your credit score. You should aim to have a credit utilization ratio of 30% or less. Anything higher can damage your credit score. Not using your card enough can also affect your credit score because lenders wont be able to measure your creditworthiness.
Know Your Debt Collection Rights
If you have a debt in collection or a collector is attempting to contact you, it can make a tense time feel even more stressful.
Its important to first verify their identity to make sure its a legitimate collector, but you also have a number of rights and collectors can work with you on realistic repayment plans.
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Use The Snowball Methoda Highly Motivating And Popular Debt Reduction Strategy
Another method a lot of people like to use to get out debt is to pay 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.
Picking A Method To Pay Off Your Credit Card Debt
Both the snowball method and the avalanche method have been proven to be effective ways to reduce credit card debt.
Proponents of the snowball method suggest that working on a smaller balance allows you to develop habits that promote credit card health while creating a goal that can be quickly completed.
Avalanche method supporters contend that building a budget that works against your highest APR card is more financially advantageous, as you are immediately reducing the debt that produces your largest bills.
Either method can combat your credit card debt, provided you have a full understanding of all of your credit card’s balances. You can also use both debt reduction methods by switching between paying off smaller balances then shifting to cards with high APRs: as best matches your available budget and motivations.
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Youre Our First Priorityevery Time
We believe everyone should be able to make financial decisions with confidence. And while our site doesnt feature every company or financial product available on the market, were proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward and free.
So how do we make money? Our partners compensate us. This may influence which products we review and write about , but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services.Here is a list of our partners.
Coronavirus Credit Card Relief Programs
Many credit card companies are offering some form of financial relief to customers impacted by the coronavirus pandemic.
In order to take advantage of any of these relief programs, youll need to first contact your provider to formally request financial assistance. Be aware, however, that many companies are asking you to first visit their websites or use their mobile apps because theyre experiencing longer-than-normal wait times on the phone.
While itll vary based on the company, here are some of the most common forms of assistance that companies are offering:
Lowering or deferring your monthly minimum payment
Many credit card companies are offering emergency forbearance, which allows you to skip or reduce your payments for a limited period of time. Keep in mind youll need to make up any skipped or reduced payments after your forbearance period ends. When forbearance ends, you won’t be asked to make up missed payments immediately, but you will need to resume making at least your minimum monthly payments, which may have changed.
Waiving or refunding late fees
If you miss a payment, your credit card company would generally charge you a late fee. During the coronavirus pandemic, however, many companies are waiving or refunding late fees, if you request financial relief because of the pandemic.
Reducing your interest rate
Establishing a payment plan to pay off existing balances
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Are There Grants To Pay Off Debt
Government and other relief programs offer grants money that doesnt have to be paid back to help with living expenses and more, for those who qualify. While there are no government debt relief grants, there is free money to pay off debt in that it will help you pay bills, giving you more income to pay on credit card and other debt.
The biggest grant the government offers may be housing vouchers for those who qualify. The local housing authority pays your landlord directly. Other government programs that provide long-term and temporary financial help for bills include the Low Income Home Energy Assistance Program , Temporary Assistance for Needy Families , the Special Supplemental Nutrition Program for Women, Infants and Children , help to pay student loans, and more. Well look at these in more depth below, including how to find them.
Be wary of offers to buy lists of government grant programs. They are usually frauds. There is no government program for credit card debt relief and legitimate debt settlement and relief programs operate by strict rules.
I Need More Money To Pay Off My Credit Card Debt How Do I Get It
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list ofour partnersandhere’s how we make money.
Fed up with credit card debt? Of course you are! Few things are less enjoyable than making high interest payments each month on purchases you made years ago. The problem is: Paying off credit card debt is tricky. If youre stuck in the minimum payment hamster wheel, heres how to find more money to pay off your credit card debt sooner.
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For Debt On One Card: Consider A 0% Balance Transfer Credit Card
A 0% balance transfer credit card can be an important tool for people looking to pay off credit card debt that is all or mostly on one card. Some credit card products offer 0% interest for introductory periods as long as 24 months. However, most charge transfer fees of from 3% to 5% of the amount you transfer. They also tend to have high variable interest rates once the introductory period ends. Of course, that wont apply if youre able to fully pay the transferred balance before then. Zero-interest balance transfer cards typically require good to excellent credit scores. You may want to do some math to compare the savings from paying no interest to the cost of the balance transfer fee.
% Balance Transfer Credit Card
It might seem counterintuitive to apply for a credit card when your main goal is to get out of credit card debt, but 0% balance transfer cards can help save you money in the long run. Find a card that offers a long 0% introductory period preferably 15 to 18 months and transfer all of your outstanding credit card debt to that one account. You’ll have one simple payment each month, and you wont pay interest.
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Pay As Much As You Can Each Month
If you can make higher repayments each month, you will pay off the debt faster and save money.
Work out the fastest way to pay off your credit card.
If you only pay the minimum, you’ll pay a lot of interest and it will take years to pay off your debt in full.
If you’re finding it hard to pay the minimum amount, contact your bank or credit provider straight away or talk to a free financial counsellor. Taking action early stops a small money problem from getting bigger.
Grow Your Emergency Fund
If youre one of the many Americans who dont have significant savings, overusing credit cards is an easy trap to fall into especially if its not possible to borrow from friends or family or cut back on spending.
You have to build your savings first before concentrating on debt, says Steve Repak, a certified financial planner and the author of 6 Week Money Challenge.
He suggests building your short-term savings to at least $500 while making only the minimum payments on your existing credit cards before you start concentrating on your debts. That way, you can tap your savings instead of swiping your credit card if you have an unexpected expense.
For consumers that have debt and their income isnt high enough to save anything, they either have to reduce expenditures or increase their income, and the best-case scenario would to do both, Repak says. Supplementing your living expenses using credit cards cannot be a solution.
- Who this strategy is good for: Anyone lacking a significant emergency fund