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How To Get Out Of Credit Card Debt
“Compound interest is the eighth wonder of the world,” said Warren Buffet. Allow us to modify as well as extend this quote a little further.
“Compound interest (when earned) is the eighth wonder of the world, while compound interest (when paid) is like a black-hole that keeps pulling you in deeper as time flies by.”
That, is how you should view compound interest.
The most commonly used form of borrowing today is via credit cards. These sleek, powerful cards must be used cautiously, though. They make it easy for you to take on leverage, but you will end up paying a lot of interest for your momentary pleasures.
While prevention is better than cure, we are focusing on the “cure” today. If you can’t get out of credit card debt and feel overwhelmingly burdened by it, we are going to help you with a few strategies that are key to get out of credit card debt on your own.
Let’s dive right in.
How To Get Out Of Credit Card Debt Fast
- Cut back on unnecessary spending
- Strategies to wipe out your credit card debt
- How to get out of credit card debt with bad credit
1. Cut Back On Unnecessary Spending
First things first, stop spending on what is unnecessary right away. The more money you save, the more you will have to pay towards your credit card debt.
This step seems rather simple at first glance, but some people may genuinely struggle here.
Can you manage not spending?
If you nodded yes, consider yourself prepared to move to the next step.
Looking for a loan with one monthly payment to help you pay off your credit card debt? Payoff might be the solution you are looking for.
Strategies To Wipe Out Your Credit Card Debt
This is where we will discuss strategies to get out of credit card debt quickly.
We will share a few pointers to help you with this. Consider these options and choose one or more that you feel will work best for your specific case.
1. Focus On The Most Expensive Credit Card Debt First
It is fairly intuitive, right? Your weighted average cost of credit card debt is being dragged upward by the credit card that charges you the highest interest in terms of percentage.
Essentially, what this means is – paying a certain amount towards your high-interest debt will reduce your monthly interest expense by a higher amount, than paying the same amount towards a relatively low-interest debt.
When you save more, you will be able to add that amount to your next month’s payment towards the remainder of the debt.
2. Pay More Than The “Minimum Amount Due”
So, let’s say you are able to save a few dollars because your income increased, you cut down on unnecessary spending, or maybe you followed our strategy #1 and saved-up on interest.
How do you use these savings to get rid of credit card debt?
Many of you already had a light bulb go off in your head because it’s pretty obvious. The neat little box on your credit card statement that asks you to pay the “minimum amount due” is the credit card company’s way of tempting you into delaying payments to earn more interest.
Instead, pool the money you are saving each month and pay it towards your outstanding principal amount.
Oftentimes, the credit card company will hold the payment and apply it to your next month’s “minimum amount due.” So, be sure to instruct them that you would like to apply this amount towards the current outstanding principal, not the amount becoming due next month.
3.Consolidate Your Credit Card Debt
While some people may choose to opt for personal loans for the purpose of consolidation, the benefit accruing to you is often marginal. We would highly recommend going for a 0% balance transfer to another credit card.
Consolidating your credit card debt with a 0% balance transfer involves transferring dues of all your credit cards to one account. The new credit card issuer will offer an introductory period (12-18 months) during which you will be charged 0% interest on your outstanding principal.
This gives you a much-needed breather to save up some cash that you can put towards paying off the principal amount. Ideally, you should look for issuers that offer the longest introductory interest-free period.
Although, make sure you don’t give in to your urges and use the saved amount to buy that jacket you have been eyeballing.
There is one caveat here, though. The issuing company will be reluctant to transfer your balance if you have bad credit. That brings us to our next discussion.
How To Get Out Of Credit Card Debt With Bad Credit?
Bad credit may make it a little more challenging for you to use debt consolidation as a strategy because lenders perceive you as high-risk. That, however, does not mean you have nowhere to go. Here are a few options that will enable you to get debt relief even with bad credit:
1. Personal Loans
Yes, just moments ago you read that personal loans provide only marginal relief. But when you have bad credit, personal loans are your best bet.
We recommend you discuss ways to minimize your rate of interest with the lender. Generally, you can obtain loans for low rates if you provide collateral or bring in a co-signer who has excellent credit.
We can’t stress this enough – whatever amount you save from the reduced interest expense, MUST go towards your outstanding principal only.
2. Debt Management Plans
You can speak with credit counselors who offer advice as well as services like negotiating a lower interest rate with your credit card issuer. They do charge a monthly fee, but you may still end up netting out in the positive because of the reduced interest expense.
However, note that you will not be allowed to use the credit card while you are on a debt management plan.
3. Chapter 13 Bankruptcy
We know, it sounds terrible. But this is your last resort. There is a good deal of stigma around declaring bankruptcy. However, a Chapter 13 bankruptcy will help you retain assets like your car and home. Also, your credit score will improve in the months that follow.
That being said, bankruptcy does come with expensive legal fees and a mark that stays on your credit report for as long as 10 years.
The sooner you get rid of credit card debt, the better it is for your financial health. If you feel stressed with the hefty monthly payments, you may end up adversely affecting your mental and physical health, too. Implement the strategies we discussed to transition into a no-stress, debt-free life.
The strategies are listed in preferential order, with the most beneficial being listed first. Use a combination of these strategies based on what works best for your case. Remember – where there is a will, there is a way.
Speak To A Credit Counselor For Free
If you have $10,000 or more in debt, Curadebt may be able to help you
Counselors are available 9:00am to 9:00pm Monday to Friday,
and 10:00am – 3:00pm On Saturdays EST.
Thanks for reading our article: How to get out of credit card debt
You might also be interested in: The Best Credit Cards for Balance Transfers.