5 Ways to Pare Down Credit Card Debt Faster
By Eva Norlyk Smith, Ph.D.
January 18, 2011
Stuck with high interest credit card debt? You are not alone. About one out of two credit card users regularly carry a balance on their credit cards, ranging from a few hundred dollars to tens of thousands. Whether you’re looking to pare down higher-than-expected credit card bills or have a long-term credit card debt you’d like to tackle, here are five ways to scale back credit card debt faster.
1. Make a list of balances and credit card interest rates.
If you carry balances across multiple credit cards, make a list of all of them, along with the APR on the cards. If some credit cards feature cash advance balances, which typically have a much higher APR, include that on the list along with the amount. Prioritize which cards to pay down first, starting with those with the highest interest. If several cards have similar interest rates, pay off the ones with the lowest balances first.
2. Look for options to consolidate high interest debt.
The less you pay in interest while still paying off debt, the faster you will be able to get rid of your credit card debt. Look for ways to consolidate high-interest credit card debt into debt at lower rates.
One of the most popular options for consolidating credit card debt is to apply for a card with a zero percent APR balance transfer offer. Over the past six months, attractive 0 APR offers have made a come-back, and many credit cards now feature 0 APR balance transfer rates for 12, 18, or even 24 months. You have to have good credit to get these offers, and most come with a 3 percent to 5 percent fee. However, if the 0 APR promotional period extends for 12 months or longer, the offer may still be worth it. If you choose this route, keep in mind that most 0 APR cards revert to a high interest rate at the end of the promotional period, so don’t transfer more than you can pay off before the end of the promotional term.
For homeowners with large amounts of high interest credit card debt, an old standby is taking out a home equity loan, but do so only with great caution, as it’s never good to leverage your home to pay off debt. Transferring balances to a low interest credit card may also be an option — check for special offers at your local bank or credit union.
3. Ask for a lower interest rate.
Card issuers have lost millions of credit card accounts over the past year, and holding on to good customers is a high priority for them. If you have good credit and options for transferring balances elsewhere, call your card issuer. Explain that you are considering making a balance transfer to a lower interest card with another issuer, and ask if they instead would like to work with you to lower your interest rate. It can at times be possible to shave at least a couple of points off purchase APRs with this approach.
However, don’t go this route if you carry high credit card balances (at more than 30 percent of the balance), have had several late payments within the past year or only pay the minimum each month. Card issuers will consider you a high-risk customer and may be happy to see you go. In short, calling about lower interest rates only works for model cardholders.
4. Get committed to saving money. There is no way around it — you have to make a serious commitment to cutting expenses elsewhere in order to free up money to pay off credit card bills faster. Generally speaking, the only way to save big money is to save a little money in many places. In and of itself, a $10 to $20 monthly savings may seem insignificant, but when combined with many others, it can quickly turn into real money. Here are some tips for finding ways to save money to pay down credit card debt — once you get started, you might find it’s quite fun.
5. Leave your credit cards in the drawer. A key to paying off credit card debt faster is to not accumulate any more debt. Leave your credit cards at home and bring your debit card or checkbook when going shopping. Quitting the credit card habit cold turkey isn’t easy, but it’s one of the most effective ways to get out of credit card debt.