Articles

How to Pay Off Credit Card Debt Faster

by Ronald Wolf Business Consultant

Debt, especially credit cards debt is a common occurrence in the western world. Americans have over $1 trillion dollars of credit card debt alone. One in three of them carries a balance on their credit cards month to month. Those households that have a credit debt owe an average of more than $15,000. These figures can seem quite alarming, and rightfully so. They can wreck your budget and put you in metaphorical chains for a very long time. The reason for that is every time you carry over a balance from one month to the next, you face higher interest rates. These can easily dwarf the main portion of your debt, and become a much larger problem than the original one. If you are like most people, you do not want to have such things hanging around for decades. But there are ways of dealing with these types of problems. Here we will go over the most prominent ones, in order to remedy this problem with the least amount of pain as possible.

 

1. Minimum payment – Maximum interest

 

We would be wrong to think that making minimum payments will get us out of debt with the least amount of hassle. Minimum payment methods are designed to keep you in debt for as long as possible, not to get you out. Interest is how all credit card enterprises make a vast portion of their money. And their best method of making money is the combination of the two. The unity of high interest and a long payment contract, which sometimes stands for decades, is Christmas for them. Unfortunately, it does not mean the same for us. The calculus is the less the monthly payment, the larger the interest on it. And the money wasted on this interest can be quite high when we put it all on paper. Generally speaking, it is the best for us to pay as much as we can afford. This way we will pay out our debt as quickly as possible, which is the best outcome for us.

 

2. Putting the credit card on ice

 

The most common mistake people make when wanting to pay off their debts is constantly making additional charges. To make a comparison, it is like pouring out the water from a sinking boat that has a hole in it. It is hacking at the leaves and leaving the root of the problem intact. Where one branch or leaf is cut off, another three shall replace it. Only if we recognize the root of the problem, are we truly on our way to true financial freedom, once again. And that is to cut spending and putting oil on the fire. Now, this may seem like pure, common sense. But in reality, it can prove to be very difficult to pull off in practice. It is always tempting to make new charges. One of the reasons is the simplicity of it. Our brains work differently with cash in hand and with credit cards. Cash is tangible and we immediately see when we part with it. Not so with a credit card, which presents us with bland numbers. And that is where one of our solutions can be found. Use cash. Cash is what you have, here and now, not owing it to anyone. It will not have interest rates, it will not bind you to a contract for decades in some cases. Another solution can be to enroll in a debt management program. This means that the creditors will freeze your accounts artificially, rendering you unable to make additional charges. You also will not be able to apply for a new credit card while under such a management. It can be a very uncomfortable situation but also a very useful one if you require external regulation for your overspending.

 

3. Trying different solutions

 

One of the positive sides of all of this is that nothing is set in stone. There are always ways for us to manage our debts, one way or another. If the option we have previously picked is not working, we can move on to the next one. Provided we have carefully thought everything over, of course. The main pointer of whether our current plan is working or not, is that we do not miss any payments or fall behind. If we do, it is nothing less than a downward spiral. So, it is our responsibility to be proactive and not let that happen. If we fall into the situation of not having anything to provide to the creditor as security, there is still hope. Under these conditions, rules are a little tighter. We may need to apply for the so-called unsecured personal loans. These are the type of loans where we do not provide any security towards the loan. Usually, they are characterized by higher interest rates, compared to more common, secured ones. So, in this case, finding a good value unsecured personal loan is a priority. These can typically be repaid in three to seven years. Another method is consolidating our loans into our mortgage. If we own our home, we may have enough equity to consolidate all of our debts into our home mortgage. Again, we still need to allocate resources to savings, because we will always be tempted to borrow more for “emergencies”. Making an ATM out of our home is never a good idea. It can lead to a situation where we have no assets, no savings and be left with a lot of debt, again.

 

4. Eliminating other debts

 

Paying off other debts may offload our budget and make it easier later on in dealing with credit card debt. Not directly linked, but many of the methods mentioned can be applied to our other financial obligations. These include medical bills, store credits for electronics or furniture, payday loans and many more. We will be able to allocate more of our budget to maximize the payments towards our credit card debt. Like we said, the further up we move from minimal payments, the better for us.

 

All of these strategies can be used and are useful individually. Naturally, it is quite beneficial to employ as many of them as possible for paying our credit card debts. Lower interest rates, more frequent payments, paying the highest interest rate balances first, all play a vital role. How quickly we can accomplish it, depends on several aspects of our financial well-being. Our situation, the level of debt itself, discipline and commitment will all play a factor. The goal of financial freedom gives us the responsibility of choosing the path towards it. Ultimately, it is up to us how we want to achieve it.


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About Ronald Wolf Freshman   Business Consultant

13 connections, 0 recommendations, 38 honor points.
Joined APSense since, January 10th, 2018, From Perth, Australia.

Created on Nov 29th 2018 04:03. Viewed 319 times.

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