things they don't tell you...
I'll say what you're thinking on all things family, friends, food, fitness & fashion.
Author: Kerri Moriarty
Falling into credit card debt is something that happens to nearly everyone at least once and it doesn't matter if it’s a huge balance or just a few hundred dollars – knowing you’re in debt is a scary feeling.
While there’s no magic solution to instantly erasing the debt (and most sources of advice give you the incredibly unhelpful tip: “work on paying down your balance”), there are a few ways to climb out the debt hole much faster than listening to what your credit card company tells you to do on your monthly bill.
1. Know your total balance and your interest rates.
First things first (I’m the realest), total all of your outstanding debt. Is it on one credit card or five? Next, figure out the interest rates you’re paying -- one card could be charging much more than another. This information is available on your monthly credit card statement, on your online account, or you can call the company to find out.
2. Know your credit score (or at least an estimate) and explore your options.
If you have good credit (you can estimate your score here) you should consider taking out a new credit card with an introductory balance transfer offer. This will let your transfer your current balance onto the card with a 0% interest rate for a period of time, usually a year or 15 months. No interest = yes please. You can check out a few highly rated Cinch Pick balance transfer cards here.
3. Set your own monthly payment – and STICK TO IT.
Your credit card company sets a minimum monthly payment on your bill – something like $25 or $50 dollars each month. This minimum amount basically promises you’ll be in debt forever. It’s very difficult to make a dent in your balance with this small payment that is mostly going toward interest charges.
Choose the largest monthly payment you are comfortable with and stick to it. You can choose a number based on leftover funds in the monthly budget – or pick a number based the date you want the debt to fully paid off (easy calculator here). If you have a month where you have more funds available, feel free to pay more. If you have an emergency and need funds, just be sure to pay at least the minimum payment that month.
The larger your monthly payment, the more of a dent you put into your actual balance. The credit card company processes the payment to pay the interest charges first, and then whatever incremental amount you've paid goes directly to your real balance – this will save you SO much in interest over the long run.
4. Be Strategic, B-E Strategic.
If you’re able to transfer your balance to a 0% credit card – that’s great! Since you’re not paying interest in the beginning, if you stick to your set monthly payment you’ll make a huge dent in your principal balance. If you’re still paying once the intro period ends, you’ll pay less in interest because your balance will be much smaller.
If you’re unable to transfer a balance to a new card – fear not. You know your interest rate and you've set a monthly payment for yourself – so let the decreasing balance begin! Stick with it.
If you have a balance on multiple cards, put the debts in order from highest to lowest interest rate. Your strategy is to pay the highest interest rate debt off first. With the monthly payment you've set for yourself, pay the monthly minimum on all the other balances and put the rest of that monthly payment toward the card with the high rate. Repeat until you've paid this card off, and then move on to the next highest rate. This lets you put the majority of your monthly payments toward your actual balance and saves you loads on interest over time.
5. Understand how this debt impacts your credit score.
There are multiple factors that impact your credit score so don’t worry that just because you owe a few (or millions of) pennies that your credit score is junk. About 30% of your credit score is determined by the amount you owe and it’s the second largest consideration. The most important factor is your payment history (35%), which means that while the credit card companies care that you’re carrying debt, they actually care more that you’re at least trying to pay. Whether you’re paying the minimum or beyond – you’re paying – and that’s what they care about. The length of your credit history (aka how long it’s been since you got your first ever credit card) makes up 15%. The types of credit you use (like credit cards compared to auto loans or student loans) accounts for 10% of the score and the last 10% is determined by how recently you've opened a credit line. So bottom line, YES – having debt isn’t great for your credit score but it doesn't mean you’re plummeting straight toward bad credit exile.
For additional information on paying down credit cards, finding the best credit card, and other financial product recommendations please visit Cinch Financial or check out our blog!
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About the Author
I am Dom. A mom, teacher, novice writer, cook, wine drinker, and so much more- filling the internet with unsolicited stories, questions, dreams, recipes, and advice. I'll be the voice that tells you what everyone is wondering but no one wants to ask!