What are some ways to lower credit card debt?
Answers
391 points
slick answered one year ago …
Consolidate as much as you can to one with a lower rate.
Those "checks" that the credit card companies send worked out well for me when I got out of college. They used to have 1.99% until you pay it off. Then I just set my online banking to pay X amount every time I got paid.
142 points
zachmckinney answered one year ago …
A lot of companies have 0% APR if you open a new card with them for the first 6 months or 1 year depending on your credit rating. These are legit offers. Open the 0% APR, pay off your debt and you can close the card.
Be careful to the 0% APR timeline though; if you go over the 6 months timeline, they usually have 17% - 30% APR. Just stay in the timeline and abide by the rules and you will be fine. Most major banks have this offer if you go into Wachovia, HSBC, Bank of America, etc.
4075 points
EthanR answered one year ago …
If you own a home that has equity in it (translation: you bought before 2004), you could take out a Home Equity Line of Credit (HELOC), current rates being 4-5% depending on the bank. Then pay off all the credit cards with the HELOC. However, having said that, I would strongly urge you to either cut up your cards after that, OR reduce your maximums on each card drastically, OR learn to use cash and only buy things when you can afford them. The HELOC will reduce your interest, but until/unless you begin to change your credit habits, you will always be in the same boat.
As Dave Ramsey loves to say (www.daveramsey.com), "The borrower is slave to the lender". Consumer Debts like credit card interest is dumb. If you can not get a HELOC, my advice is to take a temporary second job, and pay off your credit card debt until you get it down to zero. You will never build wealth by having that kind of debt over your head. Good luck.
123 points
CakeFinancial answered one year ago …
leave the cards at home.
if you get your paycheck via direct deposit, divert a percentage of each paycheck into an account and auto-pay your credit cards from there.
money you don't see is money you can't spend. =)
119 points
zellic answered one year ago …
I can't help myself. Don't spend!!!!
Credit cards are great for collecting value points and delaying payments. However, many people don't or can't see the money going out and are subject to impuse buying. I need a new shirt it's on sale so I'll buy it now. It's on sale so I'll buy extra. It goes on and on.We have all fallen into this trap. I have. I still do. It's a for of building debt. In some cases you use your line of credit to pay off your credit card.And, as a hook credit card companies will for a small fee lower your interest rate.
That's when you shold switch to cash.Use your credit card only in emergencies and only keep one.
Many compaies will come out with hoks such a low interest rate for 6 to 9 months and then zap you wth
with high inerest charge on the balance. Any new purchases are at the higher rate any payments go
onto the lower interst debt first.
Use your Credit card wisely and it's a great tool. foolishly it's like a bad narcotic, trouble.
2082 points
alanj answered one year ago …
If you do get those special offers of low interest teaser rates and use it don't use that card for any more purchases. You will be charged a higher rate on those purchases. And the payments you make will pay off the lower rate balance first. Don't use one of those teaser rates unless it's for about 9 months or more. Any less than this you won't come out ahead. Most if not all charge a transfere fee, and it just isn't worth it (the short time frame).
If you do use a card to make purchases pay off that card balance completely on the next statement you receive. If you don't think you will be able to pay it off completely don't use it, use cash. Before you make a purchase ask yourself "Do I really this, or can I do without it?". If you can do without it, don't buy it.
A warning about using the equity in your home as suggested by EthanR. Yes, you can lower the interest on your credit card debt this way. But, if you are unable to make those payments the lender can foreclose on your home. By not using this method you won't lose your home. I would think real hard before using this method. I personnally would not use a home equity loan to pay off consumer debt. Use it to increase the value of your home or a way to produce income (examples: to start or expand a business, or education for employment) If you're having trouble making your payments make your home mortgage payment first.
Don't use any cards that has a rolling balance on it until it's paid off. ( I define a rolling balance as a card balance that is not completely paid off within one month. You let it roll over to the next month.)
One way to reduce your balance without increasing your payment is to make your payment at the beginning of the pay period instead of just before the due date. This means that the remainder of the month the interest you are being charged is on a lesser balance. Which means you will be charged a lesser interest amount on the next monthly statement. If done every month this will add up over time. The result is you will pay off the debt quicker and for less, without having to increase your normal payment.
Instead of paying the minimum- pay a set amount, more than the minimum.
If you have more than one card you are paying on and you are unable to transfere the balances into a low interest card, as each card is paid off take the payment that you where making on that paid off card and apply it to one of your other cards.
896 points
jillybeansisme answered one year ago …
You need to understand how your credit card balances affect your FICO score. If you have used more than 60% of the available limit on any one credit card, your FICO score goes down -- which affects the interest rate you pay on any HELOC, car loan, etc. Also, if you have (for example) 5 credit cards and owe on all five and pay one of them off -- DO NOT CLOSE the account. It will lower your FICO score. The reason for this is that your debt ratio will rise on the remaining cards. To explain: if you have t5 cards and $20,000 limit on each giving you a total of $100,000 credit line -- let's say you owe $30,000 total on 4 of the cards and nothing on one card. Well, your debt ratio is 30% of the total limit. If you close one of the cards, you now have $30,000 debt of $80,000 max available for a debt ratio of 37.5% thereby lowering your FICO score.
Put the credit cards on ice -- literally. Put them in a bowl of water in the freezer. Or put them in a safety deposit box. Put them somewhere inconvenient. Pay extra on all cards even if it is just $5. Pay early or on time because if you are even a day late on any card, all of your cards can then up your interest rate (try 28%). Then add more extra payment to the smallest balance and get it paid off. You should now have 2 cards with zero balance. Close only one of the accounts. Pay off the next smallest balance. Close one of the two zero balances. Continue on until they are complety paid off. Keep one card for emergencies. Keep a card that offers money back as a monthly expenditure card and put all expenses on it that you can (even the mortgage payment if your mortgage holder doesn't charge a fee for using a credit card). PAY that card OFF monthly. Use the money back feature to fund a retirement account, etc.
Learn to live below your means by direct depositing a portion of your paycheck to a 401K AND to an emergency or other savings account.
348 points
Sensei answered one year ago …
Sorry for the complexity of this answer, but I've made this recommendation to several clients and they all seemed happy, so here goes ...
First, call the credit card company and see if they'll give you a lower interest rate. It's just a phone call. The worst they can say is "no", but if you don't ask it's "no" anyway so what have you got to lose? And you'll be surprised at how often they'll give you something. One client had his rate reduced from 18.5% to 10.5%! How good is that?!
Second, get your credit card listed with your online banking.
Third, use your credit card to replace cash in your pocket. Keep the credit card slips for your purchases! It's very important to understand that this is NOT the same as buying on credit as you'll soon see.
Fourth, each week (or no later than every other week) take out the slips you've accumulated and add them up. Go to your online banking and PAY THEM!!
This step is vital. If you don't do it, you're "buying on credit" and violating step 2. By paying off the current purchases this way you're doing three things ...
1. Keeping the balance "current" (i.e. you're not increasing the outstanding balance on the card.)
2. Making payments during the statement period. This means that you don't have an issue with non-payment at the end of the month which negatively impacts your credit score. In fact, it can actually improve your credit score. Even if you were to make the payment on your card after the due date, it won't matter because you've made payments DURING the statement period.
3. Lowering your interest cost.
This last one is hard to explain but, briefly ... For most credit cards, interest is charged on the oldest outstanding balance first. Usually you don't get charged interest on current purchases until after the statement "due date". This means that, even though you're paying for current purchases during the month, their accounting system will apply your payments against the oldest balance - the amount on which they're charging you interest. By reducing that balance in the interim period, you're lowering the interest cost.
Finally, when you get the statement, immediately pay the amount shown as "minimum payment" plus the amount they've charged you for interest plus whatever "extra" you can afford. Let's say, for example, $ 100.
Say you put $ 1,000 a month on your card, you owe them $ 5,000 and their charging you 18% interest ($ 75 per mo.) Here's what happens ...
During the month, you'll pay down $ 1,000 ($ 250 a week or so). That should reduce the interest cost by about $ 8 so the interest should be about $ 67. At the statement date, they'll add back your current purchases so you now owe them the same $ 5,000 - not $ 6,000 as it would have been without those weekly payments.
Plus, you owe them the interest ($67) plus the "minimum payment", say, $ 50 for a total of $ 117. We're going to add another $ 100 (as above) to reduce the outstanding amount for a total remittance now of $ 217. Notice though that we're reducing the outstanding balance by $ 150 - the "minimum payment" plus $ 100. We now only owe them $ 4,850.
Next month, we do the same thing. The weekly payments will reduce the interest cost to about $ 65 now and by following the same scenario, we'll reduce the outstanding balance at the end of the month to $ 4,700 for a cost of only $ 215 (as opposed to $ 217 last month.)
If you want to pay it off faster, instead of just paying the "minimum payment" plus interest plus $ 100, set the amount as a fixed payment - say $ 220 - regardless. Since the payments are constant and the outstanding balance is diminishing, the interest is also diminishing and more of each month-end payment is going to reduce the balance - just like a mortgage. If you understand how a mortgage amortization schedule works, you can see that each monthly payment reduces the balance due geometrically. It doesn't take 33 months to pay off the debt - it will take about two years - and save you a fortune in interest.
One final recommendation. If debt is crushing you, I highly recommend a book called The Credit Diet by John Fuhrman. He has lots of good ideas that you may find helpful.
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