The worse debt that you can carry is credit card debt. With rates as high as 29 percent, it can strangle your finances and keep you from ever getting ahead. If you are carrying more than $1000 in credit card debt, you should make it a priority to get that plastic paid off. Here are some ways to do just that.
A consolidation loan can pay off all of your credit cards at once and roll them into one loan, hopefully with a much lower overall interest rate. You can then pay off your debt much faster because you will not be burning so much money on interest.
Another perk of consolidation is that it makes paying your bills easier. Instead of paying a half a dozen or more smaller payments, you can pay just one payment.
If you decide to go for consolidation and have good credit, you have a lot of options. Websites like Marcus by Goldman Sachs, for example can make you an offer online for anywhere from $3,500 to $40,000. If approved, you can get funds sent right to your bank account with a loan rate of as little as 6.99 percent.
A rate that low is likely about a third of what you are paying now and that means two thirds less entrance. That is money that you can turn around and use to further pay down that debt.
Want a consolidation loan but have less than perfect credit, you may still have options. Websites like Loan By Numbers can get you an offer online for loans up to $25,000. If approved, you can get funds sent directly to your bank, but the loan rate is likely to be much higher.
If you pursue a loan with poor credit, make sure that the interest rate you get is low enough to actually produce savings. Make sure you consider the added costs of fees as well.
Debt Reduction Methods
If a consolidation loan is not a possibility, you should look into a method for reducing your debt. Here are two popular methods that you can consider, the Debt Snowball Method & the Debt Avalanche Method
Motivation is the cheap benefit of this method. You basically motivate yourself by starting out with small goals and then working your way up to larger ones. Here is how it works.
Take all of those credit cards and organize them based on amount owed. Now, start paying the minimum on all cards except the ones with the lowest balance. On this card, pay as much as you possibly can. Since this card has a low balance, you will likely get it paid off super fast.
Having a credit card paid off is a great feeling. That great feeling will likely encourage you to keep going with your debt reduction.
After paying off your first card, keep going by moving on to the next lowest balance. Keep doing this until your debt is gone.
Logic is the thing that makes this method work. If you want to make the most of your money, the Debt Avalanche method is for you. Here is how it works.
Again, take all of your credit cards and organize them, this time by interest rate. Pay the minimum on all of your cards except for the one with the highest interest rate. On this card, pay as much as you possibly can. Because it has the highest interest rate, you will be paying down the debt that is costing you the most.
Paying off highest interest first will maximize your dollar and allow you to overall, pay less interest. The highest interest card is likely not going to be the lowest balance card though. This means that, with this method, you might not get that rewarding “paid off card” feeling for some time.
Once you get that first card paid off, move on to the one with the next highest interest and repeat the process.
After The Debt Is Paid
Once that debt is paid off, put away the cards and keep it off. Start paying cash and if you can not afford something, simply do without it. Hopefully, the struggle of paying off that debt has taught you a valuable lesson and you will never make the same mistake again.
Also, after paying off your debt, you need to give though to your credit score. Reducing your debt will likely cause your credit score to shop u quite a bit, but be careful. The reason that your score increases is because your credit utilization decreases and your available credit shoots up. That is great, but it also means that you need to keep those credit cards.
If you go and cancel your cards, you will decrease available credit and likely decrease your credit age. That could drop your score, so, unless those cards have an annual fee, keep them open.