If you are trying Eliminating credit card debt, I’m sure you already know that it is a difficult task. But you have to have a solid plan of action required for success.
You will also need perseverance and self-discipline to get rid of your credit card debt. Once you start to narrow your balance, you will get a rush of excitement that will help you stay motivated.
Here’s what we’ll cover next:
Whatever you do, do not skip this step. If you have a credit card debt, it is easy to fall into a position of denial. Or you may know that you have spent too much in the restaurant in the last month, but unless you do a little digging to find out why you took delivery 27 times, you can repeat the same mistake.
So take a deep breath, and think about what is causing your debt. For example, sometimes people drown in debt because they do not have a budget. This often results in overspeeding. Even if you have a budget, but do not track spending, you are unlikely to stay under budget because you have no idea how much you have spent.
Here’s the deal: You have to create a budget and track spending. If you do not, you will get into credit card debt. And credit card debt is toxic.
There are two different types of debt: good debt and bad debt. With a mortgage, you are paying on an investment that will gain value in the expectation as time passes. A mortgage is an example of a good loan because you have a chance to increase your net worth.
But credit card debt is an example of bad debt. If you always pay your bills in full during the grace period, then you have to enjoy interest free loan. But if you keep a balance, you lose money. Compound interest makes your loan bigger and bigger. If you make only the minimum payment, the loan will grow even faster.
To make matters worse, keeping a high balance on a credit card puts your credit score down. you have a Credit usage The factor, which is the amount of credit you have used compared to the credit provided by you. For example, if you have a credit limit of $ 1,500 and you have a balance of $ 1,000, your ratio is 67% (1,000 / 1,500).
To maintain a good FICO score you should never have a ratio of more than 30%. This would be a balance, in this example, no more than $ 500. But to really boost your score, keep the ratio below 10%.
So, you can see how credit card debt can reduce your score. Once your debt starts decreasing, you will see an increase in your score. But it assumes that you stopped using the credit card while paying off the loan. My minus-reduction rule: When you’re trying to get rid of it, don’t add it to your debt.
Time for the fun part! Collect your financial records, whether on paper or online, and prepare to take action.
For each credit card account, make a list of the card name, annual percentage rate, and balance. Below, I will explain each strategy and suggest to help you choose the right one:
If you still have very good credit, you may qualify for a balance transfer card. These cards provide 0% introductory APR for a period of 12 to 18 months. It gives you a chance to pay off your loan while paying no interest.
But if you do not have a high enough FICO score to qualify, you can consider a debt consolidation loan.
This is a good idea if you need to combine multiple credit card balances or different types of debt into one installment loan. You will unfortunately not get a 0% interest rate, but you are likely to get a rate that is lower than the APRs on your credit card.
It is considered a personal loan, and if you have a fairly good loan, you can get approved. However, shop around, and get the best rate you can qualify for.
If you decide to deal with your debt, one option is called debt avalanche. You pay your credit card balance from highest APR to lowest APR. The best feature of this method is that you save the most money because you are getting rid of high-APR debt first.
What if you need to get an instant psychological hit to stay motivated? Then try the debt snowball method. Here, you pay from the smallest debt to the largest debt. You will pay more interest in this way, so that this approach has a significant weakness.
If you want the best of both worlds, check out My Own Creation, minus Blizzard. Start using the snowball method, and increase adrenaline quickly. Then switch to Avalanche to save more money.
If things are so bad that you do not believe that you can ever climb the mountain of your debt, then consider for help.
You can find a recognized credit counseling agency through National Council for Credit Counseling. You will get a free phone session in most cases, to help you choose the best debt-free option.
Just asking for help will not affect your credit score. Now, if you finally decide to go to one Debt management plan Or file bankruptcy, your score will go down.
But the most important thing is to stop the madness. You’ll get back on your feet, and your credit score will recover in time.