In today’s economy, it’s more important than ever to pay down debt as fast as possible in order to eliminate it. So, what are the quickest and easiest ways? Well, to be frank, all of them require discipline and commitment to attaining the goal: to eliminate high interest debt.
Here are a few suggestions to get you firmly on the path of reducing your debt and freeing up your hard earned cash so that you may build up some cash reserves and lower the amount of financial stress you and your family are experiencing.
1. Take your credit cards out of your wallet.
That’s right…get them out of reach and store them somewhere safe and secure. Use the “out of sight, out of mind” principle here. If you don’t have access to your credit cards when you’re out shopping, you eliminate the temptation to purchase items on those cards. Institute the “cash is king” policy. If you can’t pay for it with cash…then don’t buy it until you have enough cash available.
2. Pay more than the minimum due each month.
Here’s a great example for you. Let’s say you have a credit card with a $5000 balance at 18% interest and your minimum payment is $125.00 (Interest plus 1% of the balance). If you only pay the minimum each month (and never charge anything else on the card), it will take you 273 months to eliminate that card balance. You’ll also pay $6923.14 in interest, for a total of $11923.14!
However, if you bump up the minimum payment to $200.00 each month (and again do not charge anything else to the card), you can eliminate that card balance in 32 months. You’ll pay a total of $1313.96 in interest, for a total of $6313.96.
Obviously, the higher your monthly payment on that account is, the quicker you’ll be able to eliminate the balance and you’ll lower the amount of interest paid too. (Figures are courtesy of the credit card calculator at Bankrate.com)
3. Pay off your highest interest rate cards first.
Pick out the card with the highest interest rate and focus on getting rid of it first. Start paying more than the minimum on this card (if necessary for budget reasons, just make minimum payments on the lower interest credit cards you may also have). As soon as this card is paid off, move on to the next card and continue the same pattern.
4. Use the Internet to your advantage.
Most credit card companies allow you to access your account online, review charges, and make payments. Do you get paid week or bi-weekly? If so, you should consider making weekly/bi-weekly payments on your credit cards (or on the primary card with the highest interest rate that you want to get rid of first).
If you are able to make weekly/bi-weekly payments on your card and exceed the minimum monthly payment due, go for it. You accomplish a couple of things here: you eliminate the possibility of late payments, you exceed the minimum monthly payment and you accomplish the task of paying down the balance in a quicker fashion.
Making weekly/bi-weekly payments will require you to be more disciplined since you will have to perform those payments manually either through your online bank account or via the credit card website.
5. Consider some creative ways to earn extra income.
If you do this, dedicate your additional earnings to paying down your credit card debt. There are two great articles with suggestions on how to generate additional income on the Shopping-Bargains.com blog. We suggest that you read, “Tips for Earning Extra Cash Online” and “Two Easy Ways to Earn Some Extra Cash.” These two articles are excellent starting points to aid you in discovering methods of generating additional income to pay down your debt.
6. Negotiate a lower interest rate on your credit cards.
If your account is past due, you most likely will not be able to get a lower interest rate. Be sure you are current on your account before calling. Call your credit card company, explain your financial situation, and request a lower interest rate. Many times this will be predicated on not being late with any payments (not even one month). So, again it requires commitment on your part to ensure that you are able to maintain the lower interest rate.
7. Balance Transfers.
At times, credit card companies offer balance transfers with some very attractive interest rates (0%, 1.9%, 5.9%, etc.). Be cautious doing this though. Be sure to read the fine print of the “deal”. Remember, most “deals” don’t really have your best interest at heart…they exist because they’re ultimately beneficial to the credit card company. However, if you exercise due diligence, you can use balance transfers to your advantage.
Our balance transfer recommendation is to only use the option on lower balance cards. For instance, those cards where you have a good shot of paying off a balance up to $2000 within the period of a 6 month or 12 month promotional interest rate on a balance transfer. We don’t recommend balance transfers on high balances simply because you won’t be able to pay off the balance before the deal runs out.
8. Snowball your payments.
What does that mean? Well, let’s say you just paid off your first credit card balance and you were making a payment of $250 per month on that card. Now, you’re ready to take on the next card and get it paid off. While you were paying off the first, higher interest card, you have been making the minimum payment of $125 per month on card number two. Take the $250, plus the $125 you’ve been paying and combine them. Now you’ll now be paying off that second credit card at a rate of $375 per month. Do this each time you’ve paid off a card. Pretty soon your ‘snowball’ payment will be large and you’ll move quickly toward the goal of eliminating your credit card debt.
In Conclusion
These are a few tips to aid you in improving your financial situation. By following these concepts, being disciplined in your spending habits, and maintaining a commitment to eliminate your credit card debt, we’re confident that you’ll succeed in achieving your goal!