Our
taxes are done, and winter is over, so it’s time to check in with a New Year’s
Resolution that many of us have made: Get out of debt.
Credit
card debt is one of the most difficult types of debt to eliminate, and it’s
also the most common: The average American household now carries nearly $7,000
in credit card debt, and nearly one-third of those Americans pay just the
minimum payment each month.
This is
a debt emergency, and it’s time to bring in the big guns. Here are some
strategies to pay off credit card debt sooner:
Pay more than the minimum payment
Many personal
finance sites suggest paying the minimum monthly payment plus $10 per month. I
disagree. You should instead pay as much as you can, even if it means selling
some personal belongings, getting a second job, or renting out a spare bedroom.
Do whatever it takes.
Bankrate.com
has a series of helpful calculators that will help you pay down your debt,
including this one that gives a sobering look at the true cost of paying the
minimum payment: https://www.bankrate.com/calculators/managing-debt/minimum-payment-calculator.aspx
Take out a different type of loan
If
possible, take out a lower-interest loan and use the funds to pay off credit
card debt.
Warning:
This is a dangerous strategy and should be used only when you are certain that you
will not charge anything else on the credit card.
Remember
that credit card debt is bad debt, but at least it’s unsecured debt. In other
words, you didn’t put up collateral when you took on this debt; therefore, the
lender can’t foreclose on anything you own if you don’t pay the debt.
That’s
not true with certain other loans. For example, if you take out a home equity
loan and use the money to pay off credit card debt, you could lose your home if
you don’t pay.
Negotiate a lower interest rate
Your
credit card company values you as a customer and knows that you are getting
low-interest offers in the mail from competing credit card companies. This
gives you negotiating power, and your credit card company will often give you a
lower interest rate in order to keep your business.
Call
the customer service number on the back of your credit card and simply ask.
Most credit card companies field these requests all day every day, so they are
ready to offer you a lower interest rate.
If they
say no, politely ask to speak to a supervisor, who has more power to grant your
request.
A
sample script: “I’ve been your customer since ____, and I’m interested in
getting a lower interest rate. I’ve recently been offered a new credit card
with ________ for an interest rate of ____%. Would you be willing to match that
offer?”
Switch to a credit card with a lower interest
rate
If your
existing credit card company won’t lower your interest rate, considering
transferring your balance to a new card, but be careful.
This is
a risky move for two reasons: 1) Too many credit inquiries and too many open
credit accounts can negatively affect your credit score, and 2) Consumers often
switch to a card with a lower interest rate, only to find that the interest
rate increases to 20 percent or more after six months or a year.
Read
the fine print, and be sure you understand the new offer.
Negotiate a settlement
If you’re
really in trouble, you can negotiate lower payments and even a lower balance
with your credit card company. This will affect your credit score and may even
have tax consequences, so this tip should be considered as a last resort.
For
information on the various types of settlement options, this article gives a
helpful overview: https://www.creditkarma.com/advice/i/negotiate-debt-credit-card-company/
No
matter your level of credit card debt, make a commitment to pay it off and set
yourself free.
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