Eliminate Credit Card Debt
(This is a continuation of the lesson debt reduction.)
Its time to Eliminate Credit Card Debt.
If you currently have credit card or other debts you may be wondering which ones to pay off first. There are two schools of thought. You should decide which one works best for your situation.
High-First Method:
Ideally, you should eliminate credit card debt with the highest interest rates first. By paying off the credit cards with the highest interest rate first you will save more money in the long run. The higher interest rates suck more money out of your pockets each month.
Therefore, getting rid of these first makes the most mathematical sense. However, the next method can have a higher impact due to its psychological effect.
“Snowball” Method:
The second school of thought is to pay off your debts with the lowest balance and then applying the elimated payment to the next lowest balance. This is often referred to as the “snowball effect.” You also have to consider which debt payment will free up the most cash each month.
For example, let’s say you have four debt obligations:
Debts Minimum Pmt. Balance Interest Rate
- Visa $50 $3,000 22.00%
- Am. Express $150 $8,000 17.99%
- Discover $75 $5,000 12.99%
- Auto Loan $300 $2,500 8.00%
Instead of paying off the Visa first (the one with the highest interest rate), it would be a good idea to get rid of the auto loan. That way you can take the $300 per month that you no longer have to pay, and apply it to your Visa. Now you will be paying $350 per month to the Visa card (the next lowest balance). This will significantly accelerate the amount of time it takes to pay off these obligations.
Then take the $350 extra and pay a total of $500 and get rid of the high interest American Express. This method will not only pay your debts off faster, it will cause you to pay significantly less interest over the long run.
Implement a debt reduction strategy (estimated savings - $110 per month)
Simply having a strategy and applying focused attention to it will allow you to significantly reduce your debts. At this moment, decide whether you want to use the High-first method or the “Snowball” method. Once you have decided, write down your debts and decide which ones to pay off first. If you stick with your strategy and apply the extra you will find from budgeting and saving each month, you will be able to pay off your debts faster than you think. In addition, you will no longer be using your credit cards (at least you shouldn’t), so you debts will ALWAYS be decreasing.
The estimated $110 savings is based on someone with $5,000 in credit card debt paying $110 per month. With focused attention, this sort of debt should be able to be paid off in 12 months very easily. Many individuals will be able to do it in as little as 2 months.
Additional Debt Reduction Tactics
In addition to the methods for paying off your credit card debt mentioned above, there are financing tactics that can help you save even more money or pay off your debts faster.
Shop Around for the Lowest Interest Rate (estimated savings - $40 per month).
Simply put, you can save yourself hundreds of dollars each year by lowering the interest rate on your credit cards. I would recommend taking advantage of balance transfer offers that credit card companies frequently send out. You can often get a 0% interest rate on balance transfers for up to a year or more! However, if you get a new card; either close or cut-up the old card to prevent using it anymore.
Now you may be thinking, “I thought the idea was to get rid of my credit cards, not get a new one?” Well, that is correct; however, if you or your family will not be able to pay off all of your credit cards in the next 12 months, you will be throwing away good money, by not doing so.
For example, lets say you have $3,000 in credit card debt, that you do not think you will be able to pay off in the next 12 months. The average interest rate on a credit card is 15.99%. At 15.99% you will be paying about $480 in interest! That’s money down the tubes.
However, if you are able to transfer your $3,000 balance to another credit card at 0% for 12 months, then guess what? You don’t pay a red cent in interest! By simply transferring your balance to a different card you are saving $480! That’s $40 per month.
Remember, only implement this strategy if you have the self control to destroy or never use the old credit card again. This is a SHORT term strategy that is intended to get you out of debt as soon as possible.
This is another one of those Keyblast Bonuses that you can implement right away to begin saving. We have found reputable credit card companies that are offering a 0% or very low interest rates this week. Simply fill out the required information for one of the links below to see if you can begin saving $40 per month or more:
If you are in a more severe situation where your credit rating has been damaged through unforeseen circumstances or other reasons; you can take some steps to clean up your credit report.
An improved credit score could save you literally hundreds of thousands of dollars in interest on mortgages, credit cards, and other loans. According to the Federal Reserve Bank of Dallas to fix errors, dispute items, and improve your credit score:
- Contact the credit reporting company online, by fax or certified letter, identifying the creditor you have a dispute with and the nature of the error.
- Send the credit reporting company verifiable information, such as canceled checks or receipts, supporting your complaint.
- Contact the creditor if the credit reporting company investigation does not result in correction of the error. When you resolve the dispute, ask the creditor to send the credit reporting company a correction.
The credit reporting company must investigate your complaint within 30 days and get back to you with its results. If the issue remains unresolved, you have the right to explain in a statement that will go on your credit report.
(If you have not yet received a copy of your credit report, do so now right here. We will be using it extensively in the next lesson on mortgages & debt consolidation.)
If the errors on your credit report seem too overwhelming, or you would like to have a professional agency help you out; you can do so for as little as $39. One reputable credit repair agency is Lexington Law. This company is an online firm that specializes in improving individuals’ credit and handling all of the associated work.
If you are unhappy with your credit report, I would recommend contacting Lexington Law right here to see if they can help (see below).
- Implement a debt reduction strategy (estimated savings - $110 per month) Decide which debts you will pay off first and whether you will pay off the highest interest rate or use the “snowball effect.” Write this plan down, and STICK TO IT!
- Shop Around for the Lowest Interest Rate (estimated savings - $40 per month).
- Try these current offers: Discover Card
- Credit Repair (estimated savings - unlimited). If you credit is damaged, begin the steps outlined above.
- Or contact Lexington Law, and they will begin the process for you.
To continue on to the next lesson please visit: Mortgages and Debt Consolidation.
Keyblast.com offers a free financial course to help improve personal finances. If you have not done so already, please start from the beginning and learn How to Budget.
