Don’t let your monthly balances gain on you—take action.
There’s nothing good about credit card debt. It’s typically the highest interest-rate debt, it offers no tax advantages, and too much of it sinks your credit score. If you are barely keeping up with minimum payments on each card, you could be on the same debt treadmill for decades. Instead, create a payoff plan to get out of credit card debt for good.
- Take Inventory
The first step is to get a handle on what you owe and how much you are paying. “Make a list of each card, the current balance, the interest rate and the minimum payment,” suggests Marcia Brixey, author of The Money Therapist: A Woman’s Guide to Creating a Healthy Financial Life. Read through your monthly statement. Credit card companies are required to disclose how much you need to pay to be debt-free in three years. Use that number as a monthly payment guideline instead of the minimum, and you will have a three-year debt relief plan.
- Prioritize Payments
List your debt in order according to interest rate, rather than how much you owe on each. If you can afford to pay a little bit extra, put it toward the card with the highest interest-rate. High interest-rate cards cost you more, and prioritizing their payments can help you get out of debt more quickly. Once you pay off the first card, move on to the next higher interest rate, and so on.
- Try Negotiating
The average annual percentage rate for variable rate cards is just north of 15 percent, according to Bankrate.com. If your rates are far higher, you can try to haggle a lower interest rate with your credit card company, which will also help you pay down your debt faster. This strategy works best if you have a reasonable rate in mind, so research sites like Bankrate or Credit.com to see what is being offered to people with your credit. It also helps to have a good payment history. Brixey suggests reminding the customer service rep about your account’s good standing over the last few years.
- Find Expert Advice
If you’re deeply in debt, a free or low-cost nonprofit credit counseling agency may enroll you in a five-year debt management plan. Agencies will work with your creditors, close all of your credit card accounts and offer you a single monthly payment until you’re debt-free. Be aware, however, that closing your accounts will have a moderately negative effect on your credit score. Before agreeing to a debt management plan, the Federal Trade Commission recommends you thoroughly review your situation face-to-face with a certified credit counselor.
- Turn Debt into Savings
There is light at the end of the debt tunnel. Once you get there, you can allocate the money that once went toward monthly credit card payments to your savings account. You will build a fund that can help keep you debt-free for the long term. Even Brixey, a well-regarded financial expert, admits to being saddled with credit card debt years ago. “Being out of credit card debt is wonderful. It truly is independence,” she says.
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