If you have high credit card balances in 2018, you need to prioritize paying and do so as quickly as possible. The reason is that credit card debt is now more expensive than ever in the past, and if that’s not reason enough, here are a few more statistics to fuel your desire to get out of debt.
1. Total revolving debt in the United States as of February 2018, which is primarily made up of credit card debt, has reached $1.03 trillion, according to the latest statistics from the Federal Reserve. This is a historical record for our country.
2. Interest rates have already increased twice in 2018, and CME’s FedWatch tool suggests there will be another rate hike by the end of this month.
You’re about to learn the six best ways to pay off high credit card debt, but before we dive in, let’s first look at the most expensive option you want to avoid.
The most expensive credit card relief option
The most expensive credit card relief option is when only minimum monthly payments are paid. Never just minimum monthly payments on credit cards because you will end up paying the maximum amount in interest. For example, if you have a $15,000 Chase credit card balance and your interest rate is 29%, by paying only the minimum payments, you will end up paying a total of $45,408 in interest alone and it would take you over ten years to pay off the balance
1. Debt Snowball Method:
The debt snowball method of paying off your credit card balances proved to be the most effective credit card debt relief option in 2018, according to new research published by the Harvard Business Review.
With the debt snowball method, you pay off the credit card with the lowest balance first. Instantly after the initial credit card balance is paid off in full, your monthly available cash flow will increase. Then you’ll use the extra funds to pay off the next smaller bill. Once the second smallest account is paid off in full, your available cash flow will increase even more and continue to grow, like rolling a snowball. Then use all that extra money to pay off the third smallest bill.
This method works by using psychological principles. When a person achieves a goal, like paying off their first credit card debt, the brain releases dopamine and they feel good. And you want more of that good feeling, so you’re motivated to keep paying off each debt one by one. Before you know it, you will begin to see the light at the end of the tunnel and your momentum will be at its peak, and at that point, nothing will stop you!
2. Debt Avalanche Method
The debt avalanche method focuses on attacking the account that is costing you the most money, which is the account with the highest interest rate. If you like math and numbers, you will most likely go this route as it makes more sense from a technical point of view.
Technically speaking, this route will save you more money than the debt snowball method, if you can stick to the plan successfully.
There is a lot of controversy surrounding the argument of which route is more effective, the debt snowball or the avalanche method. Understand both options, and then based on your personality type, you can determine which route is best for your situation.
Some people may decide to use a combination of these two options. You can start with the debt snowball method, quickly eliminating your smallest debts that have a balance of $1,000 or less, and then switch to the debt avalanche method to pay off the rest of your balances but slowly. the most profitable way.
3. Balance transfer cards:
You can slash credit card interest rates by using an interest-free balance transfer card for 12 to 18 months. If you can pay off your full balance on the balance transfer card during the introductory period when the interest rate is zero, you’ll end up eliminating 100% of your interest and only having to pay the initial balance transfer card fee.
Be sure to keep your credit cards open after you pay them off because closing a credit card lowers your credit scores.
There are up-front fees that come with these cards, ranging from 3% to 5% of the balance.
Look for a balance transfer card that comes with:
low initial fees
an 18-month introductory rate
an interest rate of zero percent
4. Home Equity Line of Credit:
A home equity line of credit can be used to pay off high-interest credit card debt, saving you thousands of dollars in interest. Home equity lines of credit have lower interest rates than any other type of bank loan. BankRate.com estimates that the average interest rate on a home equity line of credit is just 5%.
The downside is that you are trading your unsecured debt for secured debt, and this can be dangerous because if you miss payments for any reason, you could lose your property to credit card debt.
5. Have your creditor lower your interest rate
Don’t overlook this next method, because of how simple it is. Sometimes the simple things in life are the most overlooked.
Call your creditor and ask to speak to a supervisor. Remind them how many years you have been a customer and how perfect your payment history has been over the years. Now explain to them that you are upset that they are charging you such a high interest rate and illustrate an offer that another bank is making you. If your credit score has increased from what it was when you first applied for that credit card, mention that as well.
Do some research and find a credit card company that offers a lower rate, and then you can use them as leverage.
Example: “Capital One offers me a credit card with an 8% interest rate and 1% more than what they offer in cash back. Could you lower my interest rate so I can stay with your bank? Also, You will notice that my credit score has increased from what it was when I first applied for a card with your bank two years ago.”
6. Debt Relief Programs:
A consumer credit counseling program can lower your interest rates and get you out of debt in less than five years, without affecting your credit score. All of your credit card debt will be combined into one consolidated monthly payment and the consumer credit counseling company will distribute the funds each month to your creditors but at a reduced interest rate. This program has the least effect on credit scores compared to any other debt relief program.
A debt settlement program should only be used if you are behind on your credit card payments and cannot afford more than the minimum monthly payments. The reason is that this type of program can dramatically lower your credit score and lead to negative scores on your credit report. However, if your credit score is already in the pits, then at this point you just need to focus on getting out of debt in the quickest amount of time possible and avoiding bankruptcy. Once you are debt free, you can rebuild your credit score.
If you’re about to file for bankruptcy, debt settlement can be a viable alternative that gets you out of debt in about three years and provides you with an affordable monthly payment for all of your unsecured debt.
Need more options to get rid of high credit card balances? Take a look at this article below.
