Manage Your Debt With The Lowest Interest Credit Cards And More
The lowest interest credit cards are always good choices, but we can’t all have them. You didn’t get a credit card expecting to charge it up and then be unable to pay it, default and destroy your credit. No honest person ever does. But, sometimes we make mistakes, we fail to exercise self-control, or life circumstances happen that force us to charge up high amounts of debt. Getting out from under this debt can be daunting.
Whether you have bad credit or good credit, whether you need a XXX or have the lowest interest credit cards, if you carry a balance then here are 4 ways that you can manage your credit card debt, if things are starting to look dreary.
-
Consolidate your debt to the lowest interest credit cards.
Sometimes you can’t afford to pay off your debt, but if your credit hasn’t gotten too bad yet and things are just starting to get difficult you might want to open a new credit card that can then take over all your other balances, leaving you with one payment each month. Having a single credit cards balance instead of 4, 5, 6 or more small ones can reduce the overall minimum that you pay each month. If you get a good transfer rate and APR it can save you interest. And, it can reduce what they call your “cognitive load”, that is the mental stress of dealing with too many smaller things is reduced into just one thing – it feels better. If you want to start managing your money better you need to remove some of your stress and consolidation can do that.
-
Pay more than the minimum payment.
How a credit card is used, as far as charging and paying, is paramount. Paying the minimum payment on even the lowest interest credit cards causes three problems. First, and most important, you will never get that card paid off. OK, never might be an exaggeration, but not by much. Paying minimum payments usually covers interest and not much more, so it can take years, even decades, to pay off your balance. Second, when you keep a high balance you damage your credit score. Third, when you don’t pay down your balance you don’t have your credit card available to you if there is an emergency and you need to use it.
-
Think hard before you do debt settlement.
Some people try to get out from under credit card debt doing something called debt settlement. This is the idea that you can stop paying your cards, destroy your credit, and then hope that the credit card companies will settle with you for lesser amounts. Can it work? Sometimes. But there are many things wrong with this plan.
First, you destroy your credit because you have to be late for six months or more before most banks will even consider offering you a reduced payoff. Second, by the time you get an offer you have racked up so many late fees and other charges that even if they offer you a 50% discount it is 50% of a much higher bill, and you may not be saving much at all. Third, most people who do this hire a company and these companies are not always reputable. They can take your money, up front, and do little in return. Never hire a debt settlement company that wants any money up front. Fourth, even if it all works out, you need to come up with huge lump sums to make this work – banks rarely settle with payments, they want the entire agreed to sum at once.
-
Build a ladder.
The best way to pay off your debt is called “laddering.” In this method you calculate the maximum amount of money that you can put towards your cards each month – get as much as you can. Ensure it is more than the minimum payments – get another job if you have to. Then, pay the minimum payment on every credit card you have and any amount left over send to the highest interest card. Keep doing this until that card is paid off. Then, keep going but now send any excess to the next highest interest card. Do this until they are all paid off. Note that even financial adviser SuzeOrman admits that cognitive load is important, so if you have some small balances and you would “feel better” if you paid these off first just to see some progress then do it – feeling good is important and helps you stick to your plan.
Copyright © 2014 Credit Cards . All rights reserved.
Advertiser Disclosure: The credit card offers that appear on CreditCardIdeas.com are from credit card companies from which this site receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). This site does not include all credit card companies or all available credit card offers.
Editorial Disclosure: The editorial content on CreditCardIdeas.com is not provided by any bank, credit card issuer, airlines or hotel chain, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone, not those of the bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.