In its latest quarterly report on household debt and credit, the New York Federal Reserve found that outstanding credit card balances in the United States rose by $52 billion at the end of 2021, a quarterly increase. record.
Millions of Americans are now facing higher minimum monthly payments as credit card balances rise.
But financial experts say it’s not all bleak. Here are their top tips to help you reduce your debt and regain control of your finances.
Pay off your debt faster by reducing your interest costs
When you have outstanding balances on your credit cards, high interest rates are often the biggest cost. Fortunately, there are several ways to reduce these rates.
You can contact your card issuer and ask for an interest rate reduction. Good, long-time customers have a better chance of getting this grace. The credit company will often agree rather than losing a customer to another lender.
You can also consider consolidating your debt with a peer-to-peer loan at a more competitive rate from companies like Lending Club or Prosper.
“Consider a debt consolidation loan if you can only afford to pay the minimum (or just above the minimum), your credit cards all carry a high interest rate, and your credit score is poor. ‘at least 600,’ says Blaine Thiederman, founder. of Progress Wealth Management. “Look for consolidation loan providers that charge a small origination fee (if any),” says Thiederman.
Some companies also offer special balance transfer rates – even interest as low as 0% for 18-24 months. These offers may come with a 3-5% fee, but may also provide a one-time cash bonus to offset this cost. Just make sure you have a plan in place to pay off all balances in a timely manner. Multiple transfers over time only delay the inevitable and could rack up even more debt.
Pay more than the minimum
While it can be difficult to pay more than the minimum required payment for your credit cards each month, it can save you thousands of dollars and speed up your debt repayment by years. Even small additional amounts help.
For example, if you have $12,000 in credit card debt, paying $5 more per month will get you out of debt four years sooner and save over $2,000 in interest. Paying $10 more per month eliminates your debt six years sooner and saves you nearly $4,000 in interest charges.
Your minimum payment also decreases by paying more than the minimum each month, so choosing a consistent amount and sticking to it makes deleveraging even easier.
Consider the snowball method
The “snowball method” is a popular strategy for paying off debt on multiple credit cards.
You start by making the required minimum payment on each credit card except the card with the least remaining debt.
Then send as much as you can afford to this card and repeat this process each month until the balance reaches zero.
Then continue this process with the next card with the lowest balance until you only have one card left.
Try the Avalanche Method
The “Avalanche Method” is another popular debt reduction strategy.
With the Avalanche method, you’ll pay the required minimum payments to the credit cards with the lowest interest rates, then send as much as you can afford to pay to the credit card with the highest interest rate.
The benefits of this method outweigh the snowball method, but it requires considerable discipline.
Use free online resources
You may also find useful websites and online tools to help you develop a strategy for paying off your credit cards and tracking your progress. Besides dozens of debt reduction blogs which offer strategies and support to their readers, a resource recommended by financial experts is Power Paya tool created by Utah State University.
“Use PowerPay to see the light at the end of your debt tunnel,” says Maggie Klokkenga, owner of Make a change of mindset. “PowerPay is a free online debt payment calculator where you can enter all your debts, and the calculator will provide you with the different ways to pay off the debt, for example, lowest balance first (debt snowball ) or the highest interest rate first (avalanche debt),” says Klokkenga.
Of course, to successfully pay off your credit cards, you will need to avoid accumulating additional debt. With online shopping transactions always just a click away, what steps can you take to reduce the temptation?
“One trick to help people overcome the credit card problem is to make it difficult to use the card and all its forms, including online forms that are now so easily stored on websites,” says Terri Bailey of Best Financial Advice. “My recommendation is to delete apps from your phone, not physically carry cards, and stay away from your trigger websites,” says Bailey.
Financial experts suggest that paying off your entire balance each month ranks as the best way to use a credit card. But if you’re deeply in debt on your credit cards, your first immediate concern is not to dig deeper.
Look for ways to consolidate your debt. Then, reduce your expenses a bit and increase your payments beyond the minimum.
Financial freedom is an achievable goal – but it will take work.
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Featured image: Wealth of Geeks.