Do you
have enormous credit card debt? You are
certainly not alone. According to research, the
average family in the United States has $7000 in
credit card debt and pays about $1000 in interest
each year! Throw in a late payment or two, or an
over-the-limit charge, and that number skyrockets.
Imagine what you could do with that $1000 if it
weren’t being spent on interest.
Let’s
imagine for a moment that you have $5000 debt on one
credit card that is charging you 17.5% APR.
Let’s also imagine that you pay only the minimum
due of $25/month on this card. Guess what? You will
never pay it off! The interest alone on this card is
$73/month!
That means that
each month you get further and further into debt. By
the time you have been paying on this $5000 for 10
years, assuming you have not used the card during
this entire period of time, you will owe $20,385!
That’s over $15,000 in interest. If you triple
your payment to $75, it will take you over 20 years.
So, what do you
do? How do you get out of debt and
use that money towards other necessities, savings,
and investments? Here are a few simple methods that
you can use without having to go to an expensive
financial counselor.
Tip #1: Cut
Up Your Cards
The very best
way to reduce your credit card debt is to STOP using
your credit cards! There is no need to have more than
one card, so pick the one with the lowest interest
rate and cut up the rest. The one you keep should be
deemed an ‘emergency card.” These are true
emergencies, not mere inconveniences. For instance,
buying a new TV would not be an emergency, but
renting a car in order to get to the bedside of a
dying loved one would be. You can carry your
emergency card with you, but don’t make it too
easy to use. One good suggestion is to cover the card
tape and paper and write on it: For Emergencies Only.
Tip #2: Move
Your Debt
If you have
more than one credit card payment, you may want to
consider moving debt from a card with a higher APR to
one with a lower APR. This will lower the amount of
money you are spending towards the interest and get
you out of debt faster.
Tip #3:
Use the Snowball Principle
List all of
your credit card debts, and the amount you are paying
each month. Pay off the lowest amount first. Then use
that money to start paying off the second lowest
amount. And then the next and the next. Let’s
look at an example.
If you have a
$7000, $5000, and $2000 card with payments of $150,
$125, and $100, you will finish paying off the $2000
card first. Once it is paid off, you take that $100
and put it towards the $5000 credit card. That means
you are now paying $225/month. You have increased
your payments which will pay off that credit card
sooner and will have you paying a lot less in
interest. Once that is paid off, you apply the $225
to the $7000 card, making your monthly payment $375.
This will greatly accelerate the payment of this
card, reducing your interest payments even further.
When everything is paid off, you now have $375/month
extra to put towards savings or investments!
Tip #4:
Prioritize Your Debt Repayment
One of the best
ways to pay off your debts is to get rid of the
highest interest payment first. Looking back at the
snowball example, you took the lowest and paid it
first. If, however, the $2000 card had the lowest
interest rate, you would want to pay off the card
with the highest rate first. This will save you much
more in interest payments.
If the math
gets too hard here, don’t despair. There are
many places on the Internet where you can find good
debt reduction calculators. It is then just a matter
of punching in your numbers and reading the report.
Tip #5: Consider
Consolidation
If you own a
home, you may want to consider consolidating your
debt using a home equity loan. Since a home loan is a
secured loan (they can take away your house if you
don’t pay) you have a much lower interest rate
than you do on your credit cards. Paying a lower
interest rate is always a good thing! Not only that,
but the interest you pay on your home loan is tax
deductible. This is NOT true for credit cards.
By following
these tips, anyone can take control of and completely
eliminate credit card debt.
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About The
Author
Wesley Atkins is the owner of http://www.credit-cards-advisor.com which aims to get you
fitted with the best credit cards to suit your
situation. With numerous credit card articles and
easy online credit card applications you will never
choose the wrong credit card again.
Free financial help
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