5 Ways To Majorly Reduce Your Credit Card Debt by the End of the Year
Credit card debt is a financial scourge, as it can rapidly spiral out of control due to high interest rates. However, sometimes it can be difficult to avoid going into debt. This has been particularly true for many Americans during the coronavirus pandemic, as spiraling unemployment and stay-at-home orders have created widespread financial difficulty. If you find yourself weighed down by credit card debt for any reason, take a look at these tips to help you pay it off more rapidly.
Stop Using Your Cards
It’s hard to pay off your credit card debt when you continue to use them. For those in the midst of a financial crisis, this may be hard to avoid, but if you’re just spending on your cards out of habit, you may never get out of debt. If you’re serious about paying down your credit card debt, switch to using cash, or at the very least, only spend what you can afford to pay off every month.
Simply paying off what you spend on your credit cards isn’t enough to get you out of debt. You’ll need to increase the amount you pay if you want to make any headway at reducing your debt. This can also be tough to do if you’re struggling financially, but consider where you can trim your budget to put as much as you can toward your credit card debt. Even an extra $10 or $20 per month could help you reduce the long-term cost of your credit card debt.
Use a 0% Balance Transfer Offer
If you can’t quite manage to pay down your debt right away, you can at least buy yourself some time by taking advantage of a 0% balance transfer. Typically, these types of balance transfer offers last for one year, and sometimes up to 18 months. If you’re temporarily falling behind in paying down your debt but anticipate better times ahead, this might be just the kind of breathing space you need. Bear in mind that most balance transfer offers advertise a 0% rate but also charge a 3% to 5% fee at the time of the transfer.
Consolidate to a Lower-Cost Loan
The No. 1 rule when it comes to paying down credit card debt is to stop the bleeding as soon as possible. In addition to stopping your credit card spending, transferring your balances to a lower-cost loan might be a temporary help. While you’ll still be accruing interest on your debt, cutting your interest rate can help slow the compounding effect. For example, if you have $10,000 in credit card debt at 18% and consolidate that to a 6% personal loan, you could save $1,200 per year in interest costs.
Negotiate With Your Creditors
Most people accept the interest rate that their credit card company sets without giving it a second thought. But you might be surprised to learn that you may be able to negotiate that interest rate down. While you won’t always succeed, it never hurts to ask, and if you’ve been a long-term customer with a solid payment history, your odds might increase. Knocking even a few percentage points off your interest rate could result in significant savings.
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In the worst-case scenario in which you simply can’t pay your cards, you may be able to reach some type of negotiated settlement with your creditors. This will damage your credit score but may be a way to reduce your overall debt and set up a reasonable long-term payment plan.
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