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.
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. [6] X Research source [7] X Research source [8] X Research source
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 receive. Know your interest rate terms. Check out the rates that competitors are offering.
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. [10] X Research source [11] X Research source
How long the low interest rate will last. Depending on your total debt and how quickly you think you can pay it off, 0% interest for six months may not be as good a deal as 2% for 18 months. The amount of the transfer fee. When transferring, you usually have to pay a certain percentage of your debt up-front. Make sure that a) you can afford this transfer fee and b) the fee is less than you would have paid in interest during the introductory period. Usually, transferring to a low-interest card will involve less fees than transferring to a no-interest card. Weigh how much time you expect it will take to make a dent in your debt when choosing to transfer. [14] X Research source What the interest rate will be after the introductory period ends. Will it jump up to 18% after 12 months? If it does, will you have paid off enough debt by that time to make that jump worth your while? How long you will be required to keep your balance with the company. Since credit-card hopping has become a popular way to avoid paying interest, some companies have begun stipulating that if you transfer your debt to another card before a certain amount of time has passed, the normal interest rate will be applied to all your previous balances retroactively, leaving you with a huge new debt. [15] X Research source Make sure to read all the fine print! Credit card companies are nothing if not resourceful in finding ways to take your money. Look for all the catches above and more, such as transfer fees and ballooning interest rates, before making any decisions. [16] X Research source
Always try to find the sales venue that will get you the highest resale value. Think eBay and jewelers, not pawn shops. Get creative and do the math. For example, if you have a car payment, if you can sell your car (even for less than the note is worth) for enough to pay off a card balance or three with higher interest rates and perhaps pay off the interest on the car note, then it makes financial sense to do that.
Think seriously about starting to save pocket money. It sounds childish, but the savings are anything but. See if you qualify for food assistance. It’s not glamorous, but neither is being broke. [21] X Research source Reduce your expenses by cutting costs in different areas of your life, such as spending less on entertainment or making sure your car is running efficiently so you spend less on gas. [22] X Expert Source Brian Stormont, CFP®Certified Financial Planner Expert Interview. 21 July 2020.
When you’re stressed, treating yourself to the little things can feel like a necessity, and to a certain extent, it is. However, there are much cheaper ways of going about this. Instead of waiting in line for an overpriced mocha, bring a thermos of tea to the park and watch the autumn leaves fall. Instead of going out to dinner with your friends next Friday night, invite them to a potluck at your place. There are plenty of creative ways to cut back without feeling like a Spartan.
This doesn’t have to be a drain on your income. Remember those expenses you are cutting back on? Instead of simply not spending, try actually setting aside the money you would have paid on one or two of those expenses (for example, bar money every Friday night, manicure money every-other Sunday, etc. ). Create a (free) savings account, put it in a CD, or even hide it in a cookie jar. Remember that this fund is for emergencies only. Break your leg? Go ahead and dip in. Want to upgrade your phone? Find the money somewhere else. Try to keep about 3-6 months worth of living expenses in your emergency fund. [25] X Expert Source Brian Stormont, CFP®Certified Financial Planner Expert Interview. 21 July 2020.
Freeze them in a block of ice if you need to. Freezing a sealed bag of water with the cards inside is a fun and mess-free way of doing this. That way, your card will be there if you need it, but you’ll have to wait for the ice to thaw, giving you hours to decide whether you really need it. Get a lock box. Put your cards in a lock box and put the lock box somewhere out of the way. Either give the key to someone else or put the key at another location, like your desk drawer at work, so that when you need to use the credit card, you will have to think long and hard about doing it. As a last resort, take your cards and cut them in to pieces with scissors to make sure you won’t use them again.
