I thought it time to talk on a subject that has been something of a pet project for me over the past few years. But one that i have recently focused on more and started to conquer. And that is how to pay off credit cards quicker. Here are some tips on how to speed up what can be a glacial process.
Before we look at how to pay off your cards, we must briefly explain just how important it is. And my own personal experience is the perfect example to use. I have been struggling with debt not because i constantly spend more than i earn, but because i once did and now cannot rectify the situation. My debt is persistent, the same debt that i pay some off then get hit with interest charges. One missed payment and a high debt to earnings ratio and your credit score is ruined. And that means you cannot move debt around as will be suggested below. So it is important that even if you have troublesome debt, you protect your credit score as much as you can.
Naturally this is not an option for everyone. But it may surprise you how many people have savings at the same time as carrying debt. Having a mortgage is fair enough, but having credit card debt that attracts interest whilst also having a savings account makes little sense. you lose more in interest charges than you make in interest on your savings. Using common rates, the disparity is huge. So always prioritise debt over savings. Once you eradicate debt, you free funds to start savings. You no longer have to budget for repayments and interest on what you owe. It’s sensible to have access to emergency funds. However, if you have access to a credit card, then think about using that as your back up and clear debt.
A zero percent balance transfer card is a great option for those looking to pay off credit card debt, whilst aiming to avoid crippling interest charges. The key to its appeal is that it gives you breathing space. It gives you time to pay off debt. And everyone struggling with debt needs time above all else. There are few quick fixes in the world to deal with debt problems. It is essential that you understand what is involved before proceeding however. You must ensure to detail a plan of how you’ll pay off the card before the 0% period ends, ideally a specific total per month. You must remember too that the transfer is not free. There is a set fee, normally a percentage of the total you wish to move across. You need to ensure that the cost is less than the interest you would otherwise pay by leaving the money where it is.
It may seem like stating the obvious, but many think that paying off the minimum amount on a credit card is a good thing. It is not, especially if interest is charged on the card. All you do, and I know this from experience, is stand still and waste your hard-earned money. Paying off £50 each month to then have £50 added back on in interest charges gets you nowhere. You have exceed interest charges, and the more the better. The more you pay off, the less the interest becomes. Paying the minimum is the last option, and is just about acceptable as it at least ensures you avoid charges for non-payment.
An added disadvantage to minimum payments are that they are usually a set percentage of what you owe. So if you do lower your balance, your minimum payments become even smaller. It is much better to pay a set amount each month, and one larger than the minimum. This way you have a clearer path of paying off debt. To appreciate and understand what you could save on your debt there are many calculators online. I like this excellent one from Money Saving Expert.
This is another lesson i have learned the hard way. you should always set up direct debits for credit card debt, rather than relying on you remembering to manually make payments. I forgot once or twice and not only did that activate extra fees, but it ruined my credit score. So always plan your payments and have the money taken automatically. You can always change the amounts should your financial situation change. Just ensure you have the money in your account to cover the repayments.
If you’ve got multiple credit card debts, or even one large debt, you may need an alternative approach. Or if you do not possess a good enough credit rating to get a 0% card. If so, consider consolidating your cards by utilising lower monthly interest rate. This could be around 5% or even lower, a significant reduction from the rate i imagine most currently pay. Always try to lower your costs as often as you can.