Are you saddled down with credit card debt? It may be quite difficult to make ends meet, especially if the cards are accompanied by exorbitant interest rates. Carrying balances on credit cards with high APRs could be costing you hundreds, if not thousands, each year in interest. It can also damage your credit score if your debt utilization ratio is high.
How do you expect to eradicate the balance on your high interest credit card if you keep using it? That's why it's critical to stop using it to make purchases. Keep the credit card in the desk drawer, bury it in the backyard or freeze it in a block of ice - do anything you can to make it harder to access.
An old adage says a goal is just a dream without a deadline. For this reason, you want to jot down your desired payoff date and how much you'll need to make in payments each month to accomplish your goals. To determine how much extra you'll need to pay to reach the finish, use a credit card debt payoff calculator. When you analyze the results, you'll have an idea of how much the high interest card is costing you each month and possibly be even more motivated to dig yourself out of the hole.
Now that you know how much you need to set aside each month to reach your goal, it's time to figure out how to free up funds. Take a look at your budget and start eliminating unnecessary expenses. Next, tally up all your cuts to determine if you have trimmed away enough to meet your monthly goal or if you need to return to the drawing board. These funds will serve as your debt-payoff fund and should be listed as a line item in your monthly budget.
Implement a Debt Payoff Method
If you have multiple credit cards, you'll need to come up with a feasible plan to determine which card to attack first. The route you take will depend on your personal preferences, but be sure to devise some sort of plan to hold yourself accountable. Two popular debt-payoff methods include:
- Debt Snowball: Continue to make the minimum payment on all your cards, but apply any extra funds to the credit card with the smallest balance. Upon paying off the card with the smallest balance, follow the same method with the next card in line and so on until you're completely out of credit card debt.
- Debt Avalanche: Continue to make the minimum payment on all your cards, but apply any extra funds to the credit card with the highest interest rate. Once the first card is paid off, continue the pattern until you reach the finish line.
Use Financial Windfalls Wisely
Any unexpected sources of income, including tax refunds, monetary gifts, bonuses and inheritances should be applied towards your high interest credit card balances. You can use whichever debt-payoff method you selected to apply the funds. It is a great way to knock a few of those cards with smaller balances, but excessive interest rates, out the way.
Ask for an Interest Rate Review
On occasion, creditors may review your credit rating to determine if you qualify for a rate adjustment or credit line increase. (Poor performance with regards to credit could also yield the opposite results.) If you've managed your debts responsibly up to this point and are in good standing with your creditors, contact the credit card issuer to inquire about a manual review. They may be able to analyze your account on the spot to determine if you qualify for a lower interest rate.
If you're hesitant, keep in mind that they want to retain your account. Because of this, they may be more than willing to work with you to prevent you from taking your business elsewhere.
Apply for a Hardship Program
Are you struggling to manage your high interest credit card payments? Depending on your circumstances, you may qualify for a hardship plan. According to Credit Karma, creditors sometimes offer a hardship plan "to existing account holders who are experiencing a rough patch, like unemployment or an illness."
If you feel your situation may qualify, contact your creditor to inquire about financial hardship programs that may be available to you. They may be able to lower or freeze the accrual of interest until you get back on your feet, but the sooner you call, the better. Programs will vary by credit card issuer.
To illustrate, assume you have a card with $2,000 balance, 24.99 percent APR and a minimum payment of $50:
|Program||Time to Payoff||Total Interest Paid*||Total Amount Paid*|
|Standard payments (no hardship program)||87 months||$2,341.64||$4,341.64|
|No-interest hardship program||40 months||$0||$2,000|
|Reduced interest hardship option (12.99% APR)||53 months||$634.82||$2,634.82|
*These figures only apply if you do not incur any additional charges.
Add a Second Job
If you want to give your debt-payoff fund a boost each month, consider additional part-time employment if time permits. You can also ask your supervisor to work overtime or pick up additional shifts if that's easier for you. Once the funds you earn from your second job are deposited into your bank account, immediately apply them to the card with the highest interest rate.
Visit Your Bank
Using a lower interest rate loan to pay off your high interest credit card balances could result in significant savings. It may be worth inquiring with your financial institution about personal loan or debt consolidation products that may be available to you at a relatively low interest rate. If you own a home, you may also find that a home equity line of credit is an option if the interest rate is substantially cheaper than what you are paying on your high interest credit card.
Transfer Your Balance
If you're disciplined enough to avoid additional charges, consider applying for a balance transfer credit card that offers a promotional APR of zero percent on transferred balances. Although you may incur a fee to transfer your balance from another card, you'll also save a bundle in interest (as long as you don't make any additional purchases).
Just be sure you're in a position to pay off the balance before the promotional period expires or interest could be retroactively applied. Also, aim for a product with no annual fee since you probably won't be using the card much once your debt is paid off.
Borrow Money From Family or Friends
While you may be embarrassed to ask others for money, borrowing money from friends or relatives could be an ideal way to help minimize the interest you are paying on your high interest credit card. Use the money to pay your credit card balance in full and (of course!) avoid making additional charges. Just be sure to pay them back in the agreed upon time frame to keep the relationship intact.
The faster you commit to paying off your high interest credit card, the less you'll spend in interest over time. By incorporating these tips, you'll also be well on your way to eliminating high interest balances forever.