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Pay Off Credit Card Debt

9 November, 2013



Pay off credit card debt in order to get in a position of saving money. Yes, that is stating the obvious, but sometimes the obvious is overlooked!

So how do you pay off that card debt? Let’s look at some saving money ideas and see.

When that window envelope arrives in the mail or the email notice of your credit card statement arrives, do you just ignore it?

Is that just one of those dreaded monthly occurrences?

or

Do you tear it open hoping upon hope that somewhere some good Samaritan made a huge payment for you?

Do you get a knot in the pit of your stomach?

If so, we may have some pointers for you that you might not know or had forgotten.

Credit card debt can most easily be managed by:

  • Nonuse of credit cards
  • Paying more on the balance than you spend
  • Switching to low interest credit cards
  • Use credit cards with no annual fees
  • Using debt consolidation

Don’t Use Credit Cards

There I go stating the obvious again, sorry! Really though, DONT USE CREDIT!

Credit cards are a great tool when used correctly, but I can tell you that most people don’t.

What happens when you charge more to your credit card than what you pay on your balance?

That’s called revolving credit. What that means is you keep adding to your balance and the interest charges keep on multiplying. The balance continues its upward spiral until all of a sudden you have reached your credit limit.

Sometimes I hear people exclaim they don’t know how the credit card balance got so high.

Overspending and living beyond your means is how. I know, because I’ve been there too.

The cost of credit is high.

Most credit card companies charge high interest rates, 19 to 24% and in some cases much higher. The higher the risk you seem to be to the company the more you have to pay.

It actually becomes counter-intuitive; the higher the assumed risk you pose (maybe you missed payments or don’t hold a steady job as examples) the more likely you are in a position to not afford those high payments.

How does the credit card company deal with this…

They charge higher interest and this can put the card holder in even greater peril.

Make Those Payments – Pay More

Don’t skip payments and NEVER just rely on paying the minimum balance (more on that later).

Most credit card companies give consumers one grace payment a year.

In other words they allow you to skip one payment every 12 months…

Don’t do it!

You must pay more than you spend every month in order to pay off credit card debt.

Low Interest Credit Cards

If you have credit card debt you find unmanageable, go shopping; no, not for merchandise but for a better interest rate. Financial institutions want your business and some do offer lower rates for a small annual fee.

You have to be proactive and even ask your current credit card company to lower the interest rate, you never know unless you ask.

I have had friends who have told me they got the credit institutions to lower interest rates when they explained they couldn’t keep up payments.

Skip Credit Cards with Annual Fees

I know I just said get a card with an annual fee (see Low Interest Credit Cards) but in that case you have to weigh out the possible low interest and see if it is a good fit for you.

For the most part though, you can save yourself a hundred or so bucks a year by avoiding cards that charge an annual fee.

Point, frequent flyer miles, prizes are never a bargain against paying that fee.

Use a Debt Consolidation Service

As a last resort, you can hire the assistance of a debt consolidation service.

They will promise to consolidate all your debt into one payment and this they’ll do.

Rest assured though, they are like any other financial institute, they must make money… they’ll gladly take yours.

Had any experience with one of these credit consolidation companies, we’d love to hear about it?

Pay Off Credit Card Debt

These are just a few of the best saving money ideas towards paying off that credit card debt. I would like to show you some detail of how you can get a credit card balance under control.

We use our credit cards every month and, well, um, we have some credit card debt that we allowed to get out of control.

So how can I write and give advice? You ask?

Well I am leading by example in this case. You can click away if you disagree, or you can read on.

Still with me?

Ok, let’s look at how to pay off credit card debt.

You must make more than the minimum payment every month. If the minimum is all you pay, then be prepared to pay, pay and pay for years before the debt ever disappears. Of course that is assuming you don’t charge any new debt!

As an example on a $7500.00 credit card debt at 21% interest, if all you ever made was the minimum payment $224.00 (which by the way will get smaller as time progresses, 2.5% of the remaining balance) the time to pay off that debt… A whopping 22 years!  Paying $15,680 in interest! Assuming again you don’t make any new charges.

OMG… does that fit into your long term saving money plans?

Yes eventually that will pay off credit card debt but at what cost to you?

Change that payment to $500 and the time to pay it off shortens to 18 months! The interest now is a modest $1280.00 over the shorter time period.

Start by paying every month all the charges for the current month. It doesn’t matter how small, keep track of those new charges and pay them every month.

Now figure out how much you can afford to pay against the balance every month and pay that too.

Let’s assume you had charged on your card a total of $125.00 in new charges this month and you determined you will make a balance payment of $550.00 each month. Then this month you will pay $675.00 onto your card.

I don’t know your circumstances nor do you know mine, but what I do know is the amount you pay on the balance, over and above the new charges plus the minimum payment is what is going to make the difference to pay off credit card debt.

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