What is the best advice for clearing credit card debt

Credit card debt is generally caused by spending more than you earn over a prolonged period.

There are two solutions to credit card debt:

  1. Spend less
  2. Earn more

Credit cards are very good for users if use correctly.

Let me first list a few benefits as it is important that you use credit card for a good reason:

  • Access to cash you normally would not have
  • Online and mobile shopping
  • Security of your money
  • You can build your credit
  • You earn additional benefits such as air miles, hotel points, cashback etc
  • No need to carry cash

You should be using credit card to use any of the above.

What credit cards are not for is:

  • Buy products you cannot realistically pay off
  • Use it instead of loans or mortgages
  • Consolidate your debts (there are some exceptions)

Now once I explained what credits cards are for let me explain some ways to clear the credit card debt:

Understand your debt

Have a good understanding how much you have to pay off including all interests and other fees.

Once you understand it compare it to your income and plan it how much you can realistically pay off every months.

For example: if you owe $20 000 and you earn $2000 per month it is obvious that you cannot pay the debt off in a month and the interest will start compounding.

However if you can save $300 per month you will pay your debt in around 5 and half year assuming your debt is not increasing and there is no extra interest.

It is not usually the case as the interest will add every month which will put you in trouble.

Assuming you have $20 000 to pay off and only $2000 of income with the possibility of paying $300 per month you can still do something.

You regular credit card interest is around 20%+ and it is adding up every months so you need to come out of this crazy trap and find an alternative solution such as:

Loan from the bank

They are usually on much lower interest and you should easily find something around 7–10%. this means that it will cost you around $1800 extra every year and you will need more years to pay it off.

The good side is that the debt will not grow any more.

Loan from the bank on lower interest such as 5%.

There is plenty of them currently so if you have reasonable credit you should be OK to apply.

This will still cost you and you will need around 8 years to pay it off but it will be the clean way out of the debt.

If you have some extra money you can pay off more and quicker.

The good news you will start getting control over your finances.

Balance transfer is always an option

If you think a balance transfer could help with your situation, go for it.

Of course, your Credit Score still needs to be in check.

A balance transfer Credit Card will allow you to transfer all your debts to a Credit Card with a zero or low interest rate.

Make sure you read everything about the Balance Transfer Credit Card before zeroing in on one.

Also, don’t make new purchases on that card.

Find another credit card with 0% money transfer up to 24 months and apply for the loan for $10 000 only if you can card for $10 000.

This will easy a little bit the burden and you will gain the interest not growing that much and 5% of an interest loan will be only $500 per year.

You will need 4 years to pay it off and apply for another loan after that.

Be careful and find another credit card for money transfer after the free interest offer expire otherwise it will cost you a lot!

Make more than the minimum payment. 

Credit card companies love it when you pay just enough to get by every month.

At that rate, you’re mostly paying off interest and barely scratching the surface of your actual debt.

Look at your most recent credit card statements to get a ballpark figure on what your monthly interest is, then budget as much of a payment as you can over that amount to actually see a difference in your statement.

If you want to know how much above the minimum you should pay, remember what interest is.

Interest is the price you pay for money, and creditors always want you to pay interest before anything else.

So making the minimum payment is usually only enough to keep your interest from compounding your debt into the stratosphere—to keep it where it is.

In other words, you want to try to pay enough each month to get beyond the interest and into the principal.

Pay off debt with the highest interest rate first.

It goes almost without saying, but it’s something that a lot of people forget.

If one credit line is charging you 11% Annual Percentage Rate, or APR (interest over the course of a year) while another credit line is charging you 9% APR, focus all your attention on the debt that falls under 11% interest rate.

Pay it off before even touching the other debt.

Sure, the other one will accumulate interest in the meantime, but since you’re paying interest either way, you might as well do it at the lower percentage.

If this process seems too hard, try snowballing your debt.

If your interest rates are all roughly the same or you’re simply overwhelmed by the sheer number of payments you have to make each month, make the minimum payments on all but the lowest balance–which you should attack aggressively so that it disappears quickly.

Once it’s gone, add the payments you would have paid on the lowest debt to the minimum payment on your next-lowest debt until it, too, disappears.

Repeat until all debts are cleared. The sense of satisfaction you will feel in making fewer and fewer payments each month will make the process more bearable and help you achieve your goal.

Talk to your credit card companies. 

Explain your financial situation and ask if there is anything they can do to help.

Many will lower your interest rate for a period of time and/or waive current late fee balances to give you an opportunity to catch up.

If you’ve been a customer of theirs for a long time, mention that.

While some credit card companies don’t care about customer loyalty, more than a few do.

Those that do sometimes go to great lengths to keep their customer base happy and loyal, whatever the circumstances.

If at first you don’t succeed, ask someone more important.

If you can’t make any headway with the first persons you speak with, ask to speak to a supervisor.

If that doesn’t work, ask to speak to the retention department.

If that doesn’t work, call back in a week or two.

Come prepared. Be sure to compile a list of other offers you recieve.

Know your interest rate terms.

Check out the rates that competitors are offering.

Never close cards with existing balances.

 It might seem like an easy way to get a handle on your debt, but it’ll do horrors to your credit score, and you’ll still be on the hook for the debt. 

All this will do is send your credit utilization (your available limit v. your current debt) down, further driving down your credit score.

Learn more here on how to increase your credit score.

If you feel like you must close an account, you need to pay it off extremely quickly, and you need to make sure that the company records that it was closed at your request and not theirs.

Make this request in writing.