For years we have been coached to pay more than the minimum on our credit card balances, yet sometimes it can be difficult to dedicate “extra” money to our credit card debt when other priorities are screaming for attention.
The fact remains that if we pay only the minimum month after month, debt that we could repay in a dozen or so months can stretch on into dozens of years! Here are three ways to focus more money on burdensome credit card debt to repay it once and for all:
- The Never Decreasing Minimum: Credit card minimum payments are calculated to pay about 1% of the balance plus the finance charges. If we only pay the minimum payment, our principle balance barely decreases. But what if you can only afford the minimum? After you STOP using your credit cards, pay the minimum one last time, then never pay less than that amount, even if the amount on the statement is less. You will cut years off your loan repayment and save big bucks in interest fees.
- The “Snowball” or “Avalanche” method: Line up all your debts. Dig in your budget to “find” an extra amount you can consistently dedicate to repaying your debt each month. Continue to pay the minimum on all the balances, but pick ONE balance to place your extra money towards. This balance will dwindle quickly. When it is repaid, take the “extra” money along with the minimum payment and roll it over to the next creditor. How do you decide which creditor comes next? There are two ways to decide: the Snowball method has you repay the lowest balance first and move on to the next lowest balance. The Avalanche method focuses on the highest interest rate first. Both are great methods. How do you decide? Choose the one which matches your motivation style. If you like to cross things off a list, the Snowball might be for you. The Avalanche tends to be slightly cheaper over time. The important thing is to pick one and start. You’ll waste time and money by staying in debt.
- A Debt Management Plan (DMP) with a non-profit Credit Counseling Agency: Agencies like CCCSOK.org have special arrangements with creditors which help people to pay off credit card debt faster. Creditors agree to lower interest, stop late and over the limit fees, and payment amounts in order to help people repay all of their unsecured debt faster. Creditors have seen over time that this is a great way to help people become better borrowers in the future and to help them recover money they have lent. In a DMP, you make one payment a month to the credit counseling agency and we forward it out to the creditors enrolled in the plan. You don’t get to decide what your payment is and the payment does not decrease while you are on the program. This helps your debts to pay off quickly. Most people finish repaying all of their debt within 3.5 to 4.5 years. All the plans are designed to be completely paid off in 5 years or less. DMPs are great for your credit score if you need to show consistent payments and to decrease your overall indebtedness, but you do have to agree to stop using credit while you are on the program. Always be sure to protect yourself from sound-a-like scammers. Dial 2-1-1 to connect with the credit counseling agency in your area so you don’t get sucked in by a crafty debt settlement company.
If you are struggling to stop using credit cards, the first place to start is by learning more about how to use the best budget for you. As always, we are here ready to help you with a one-on-one session to help you get back on track.
No matter what method you decide to take in reducing your debt, start as soon as you can. The time is going to pass anyway. Wouldn’t you like to see the light at the end of the tunnel? Start today to find out your debt free date.