Here are the 5 worst ways to pay off credit card debt
Want to know the worst ways to pay off credit card debt?
Here’s what you need to know – and what to do about it.
1. Skip a payment here, skip a payment there
“Maybe your credit card debt will go away if you forget it?” ” Good try. Whatever you do, don’t skip your monthly payments. It is one of the fastest ways to destroy your credit score. You will owe more interest and late fees. Even if you are facing financial difficulties, contact your credit card company in advance and discuss possible options. It might sound uncomfortable, but it’s much better than just missing a payment.
Do this instead: Sign up for automatic payments to see at least consistent payments every month.
2. Pay only the minimum payment
“Well, at least my monthly payment isn’t that bad.” Flash info: your minimum payment doesn’t have to be your monthly payment. Yes, they can be different. As long as you pay the minimum balance each month, it’s up to you to choose how much additional amount you want to pay. Remember, interest always accumulates on your principal balance. So paying more than the monthly minimum can lower the cost of your credit card debt.
Do this instead: You can always pay more than the minimum amount and pay off your credit card debt faster.
3. Never make additional payments by credit card
“Additional payment? I barely have enough for my regular payment. Making an additional credit card payment can be one of the best ways to pay off credit card debt faster. Here’s how it works: In addition to making 12 monthly payments per year, consider an additional payment once every three months for a total of 16 payments per year.
Do this instead: Be sure to notify your credit card company in writing to apply any additional payments to your principal balance only (and not to the monthly payment for the following month) to limit the amount of accrued interest.
4. Never make a lump sum payment by credit card.
“Lump sum payment? I will be skiing in Aspen next week. Should you use your bonus to pay off your credit card debt? Think of it this way. The interest rate you pay on your credit card debt could be higher than the interest on your mortgage, student loans, and auto loans combined. Every day you don’t make a payment, more interest accumulates on your debt balance. A lump sum payment can be any amount – $ 10, $ 100, $ 1,000 or more – and make lump sum payments as often as you can.
Do this instead: Anytime you get a raise, bonus, tax refund, or grandma’s gift, take a lump sum to pay off credit card debt. Make every dollar count.
5. Don’t consolidate your credit card debt
Consolidating credit cards with a personal loan is often the best strategy to pay off credit card debt faster. A personal loan is an unsecured fixed rate loan of $ 1,000 to $ 100,000 that is repaid within two to seven years. When you consolidate credit card debt, you are swapping your credit card debt for a personal loan with a lower interest rate. For example, if you have $ 10,000 in 15% interest credit card debt and can get a 6% interest credit card loan, you could potentially reduce your interest payments by more. by 50%. The lower interest rate saves you money and helps you get out of debt faster.
Personal loan rates start at 5.99%. Of course, you should only consolidate your credit card debt if you can earn a lower interest rate than you currently have on your credit card debt. You should go to multiple lenders and consider a qualified co-signer to increase your chances of approval.
This credit card repayment calculator shows you how much you can save when you refinance credit card debt with a personal loan.
Do this instead: Apply to consolidate credit card debt. You can apply online and the funding in your bank account can be in a matter of days.