Credit Card Debt.
Just thinking of these three words is enough to make any adult shudder. Every month we receive a credit card statement, or worse, statements, showing how much credit the bank was willing to extend to us, how much of that we have used, and how long it will take to pay back. Not only do we have to pay back the money the bank extended to us, but with interest as well!
This means, that, a maxed out credit card that had a $1,000 limit and 25% interest rate, that you paid only $50 on each month, would take you two years and three months to pay off, even if you did not add any more to the balance on that card. Not only that, but you would end up paying $307.08 in interest.
And that brings us to the ways to reduce your credit card debt.
1. Pay more than the minimum
This is the conventional wisdom. Pay more than the statement says you have to pay and magically you’ll end up paying less money and for a lesser amount of time. Does it stack up? Let’s see. If you increase your monthly payment by just $50 to an even $100, you shorten the amount of time it would take you to pay the card off by15 months. That’s right, you could pay this card off in just a year by doubling your current payment.
2. Take advantage of balance transfers
One thing many consumers do not think about when they use their credit and debit cards is that the bank makes money on them spending money, nearly 2% of every transaction you use a card for goes to the bank that issued you your card, so the bank is getting paid for you buying things and then again when you pay them back for allowing you to have the credit card in the first place.
One tool banks have that allows them to make sure you’re using their card are balance transfers. This can help you to reduce your overall credit card debt. There are two ways to go about this. In the first method, you have two credit cards.
The first card has a balance of $1,000 with a credit limit of $2,000 and an interest rate of 15%. The second card has a balance of $750 on a $1,000 credit limit with an interest rate of 28%. In this scenario, you have a card with a bit of room on it and a pretty good interest rate and a card nearing its limit with a high interest rate. If these two cards are issued from separate issuers, what you can do is initiate a balance transfer.
A balance transfer is exactly what it sounds like: Moving the balance from one card to another card. In this case, we would be moving the $750 from the second card to the first card. This would give that card a $1,750 balance at the 15% interest rate. The second card, the one with the 28% interest rate, would now be an empty card with no balance. You would save money every month because you would not be paying the 28% interest rate anymore.
3. Take advantage of special interest rate offers.
This is something banks do not advertise, you have to ask for it. Call the number on the back of your credit card and ask the bank representative if you could have a special lower interest rate period. A bank will most likely acquiesce and grant you a period of low or 0% interest for a set time limit. The bank knows that if they refuse this request, you may take your banking elsewhere, open another credit card, and move your balance to that bank’s card, causing them to lose out on the interest you would be paying them.
Remember, when it comes to paying back credit cards, you are in the driver’s seat. The bank wants you to pay back that card, with interest, but they are open to various ways of allowing you to pay back that card. Be proactive, don’t let their collections department call you first.