Credit card debt is something that, unfortunately, most people have. Regardless if it is just a few months to holding a balance for years on end, card payments is as common as sunshine is in the morning. But as people get into debt with their cards and realize that it is one surefire way to cost them a good credit history, they start looking for ways to pay their card balances.
Of course, paying off their credit card balances is easier said than done. Consumers soon find sweat forming on their foreheads trying to figure out their next steps. They fear that they are way in over their head and unsure of their next steps. At this point, a lot of people just to decide to forget about it and go on hoping against hope that the lender just mysteriously erases all their credit card debt.
Bankrate explains that years after the Great Recession, people can’t seem to dig themselves out of credit card hole they are in. It estimates that about a quarter of American consumers have bigger balances on their credit card compared with their emergency fund. This means that people have more debt than funds that’s supposedly used to bail them out of tight financial situations including debt payments.
This further complicates the situation because as people nurse the balances over a long period of time, they are actually throwing away money in interest payments for the credit card debt. The longer the payments are in installment, the deeper the burn it creates on the household budget and the future financial savings of consumers.
3 options to pay down your credit card balance
If you are staring down debt and looking for ways to tackle credit card payment more aggressively, you are not alone. It is one thing to be in debt but it is another thing to get stuck in the debt cycle for a very long time. This is not far from happening with all its interest rate, penalties, fees and surcharges eating up on your hard earned money. Here are some ways to pay effectively pay down credit card debt.
Increasing the payment schedule. The most common payment arrangement for credit card balances is once a month. But if you want to aggressively pay down debt, you may want to increase your contributions to twice a month. It will not only decrease your principal balance faster, it will also minimize the interest amount that will accrue on your debt each month. It may be possible for you to make smaller payments each time but make sure, the amount is no less than your minimum payment requirement. If you have a huge debt cutting the payments to smaller pieces might make it easier to handle and budget.
Use the snowball method. Huffingtonpost.com explains this method as aggressively paying down the smallest credit card balance while keeping minimum payments on all the rest. Popularized by finance guru Dave Ramsey, this payment method is more of a morale booster compared with other payment strategies. Reason being is that being able to pay off one debt can give you two things – the confidence to tackle the next one and extra funds to allocate over to the next target. It gives you small wins every time that methodically builds up to prepare you for the big credit card debt payments.
Use the avalanche method. To make it simple to understand, this is the opposite of snowball method. If the snowball method encourages you to tackle the smaller balances first, the avalanche will tell you to pay off the debt with the highest interest rate first. As you pay all your accounts with the minimum payment requirement, the debt with the highest interest will be paid much more. This is actually more practical if you want to save more money. That is because you are also attacking the interest amount that you will pay off throughout the duration of the credit card debt. If the snowball method is for the emotional people, this is for the more logical ones. Those who will opt for the avalanche are concerned about the savings that they will get in the long run over the satisfaction of an early debt payment completion.
All three of these options will help you make better progress in reducing your credit card debt.
How to save on credit card fees and interest rate to lower your balance
Apart from the repayment plan that you will choose, you also have to think about how you can minimize the interest and the fees that are consistently added to your account. Especially after the news from Bloomberg.com, you may want to think about how you can minimize the interest rate on your debt.
According to the article, American Express Co. is planning to raise their interest rate – specifically those on credit cards. This decision came after the company had a big setback caused by an antitrust lawsuit. This information was already cascaded down to the million customers of the said company. The annual rate will climb by up to 2.5%.
In case your major credit card debt is under American Express, then this is one big problem for you. Here are some tips that you may benefit from to reduce the impact of this news on your finances.
- Do not use your card while paying off the balance. If you keep on using your card while you are in the midst of a repayment plan, it will take you longer to finish paying off all your debts. This is why you should stock your cards for the moment – at least, until you have significantly reduced your debts. Better yet, do not use your card until you have zero balance. Remember that the interest amount that accrues on your balance will depend on the amount that is being carried over the next billing cycle.
- Never pay lower than the minimum. Paying below the minimum will not only keep your balance high, it will also trigger late penalty fees. If you cannot meet the minimum payment requirement, that will be considered not paying off your monthly obligation. It will cause you to pay the late penalty fee and it will increase your balance. Some companies will even change your interest rate and make it higher because of it. This should be enough reason to encourage you to prevent late credit card payments.
- Increase your payments. Lastly, you may want to increase your payments each month. This is one of the ways that you can really be aggressive in your efforts to pay off the debt – most especially in minimizing the interest amount that will accrue. Cut back on your monthly expenses by downsizing your lifestyle. Make a lot of sacrifices to increase your extra income so you can pay more towards your card balance.
If you follow these tips, you should be able to keep the interest rate and penalty fees from adding more problems into your credit card debt. You can concentrate your financial resources on paying off everything that you owe. And once you have successfully paid off your balance, make sure that you keep it from piling up again. You should learn your lesson and implement the best practices when it comes to using credit card for your purchases.