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If you have high credit card balances in 2018, you need to pay them off at the earliest and make it a priority to do so. This is because credit card debt has now become more expensive than ever before, and if that is not reason enough, here are some more statistics to fuel your desire to get out of debt.
1. Total revolving debt in the United States as of February 2018, which is primarily made up of credit card debt, has reached $1.030 trillion, according to the latest Federal Reserve data. This is the highest ever level for our country.
2. Interest rates have already risen twice in 2018, and the CME Fedwatch tool suggests another hike is on the way by the end of this month.
You’re about to learn the six best ways to pay off high credit card debt, but before we dive in, let’s take a look at the costliest option you’ll want to avoid.
Most Expensive Credit Card Relief Options
The most expensive credit card relief option is to pay only the minimum monthly payment. Don’t just make the minimum monthly payment on a credit card as you end up paying the maximum amount in the form of interest. For example, if you have a Chase credit card balance of $15,000 and your interest rate is 29%, when making only the minimum payments – you’ll pay a total of $45,408 in interest alone and take you over ten years to pay it off. Time will take out of balance.
1. Debt Snowball Method:
The debt snowball method of paying off your credit card balance proved to be the most effective credit card debt relief option in 2018, according to new research published by Harvard Business Review.
With the debt snowball method, you pay off the credit card with the lowest balance first. Soon after the opening credit card balance is paid in full, your available monthly cash-flow will increase. You would then use the extra money to pay off the next smallest account. Once the second smallest account is paid off in full, your available cash flow will increase even more and continue to grow, just like when the snowball is rolling. Then, use that extra money to pay off the third-smallest account.
This method works by using psychological principles. When a person accomplishes a goal—such as paying off credit card debt first—the brain releases dopamine, and it feels good. And you want more of that good feeling, so you’re motivated to pay off each debt one by one. Before you know it, you’ll start to see the light at the end of the tunnel and your momentum will be at its peak, and at that point – nothing is going to stop you!
2. Debt Avalanche Method
debt avalanche The method focuses on attacking the account that is costing you the most money, which is the account with the highest interest rate. If you like math and numbers, chances are you’ll gravitate towards this path, as it’s the most suitable from a technical perspective.
Technically speaking, if you can successfully stick to the plan, this route will save you more money than the debt snowball method.
There is a lot of controversy surrounding the argument as to which route is more effective, the debt snowball or the avalanche method. Understand both options and then based on your personality type you can determine which route is best for your situation.
Some people may decide to use a combination of these two options. You can start with the Debt Snowball method, quickly eliminate your smaller loans that are $1,000 or less outstanding, and then switch to the Debt Avalanche method to pay down your balance in the most cost-effective way In a proper way.
3. Balance Transfer Card:
You can lower your interest rates on credit cards by using a balance transfer card with no interest for 12-18 months. If you can pay off your entire balance on a balance transfer card during the intro period when the interest rate is zero, you will eliminate 100% of your interest and only pay the balance transfer card’s upfront fee.
Make sure to keep your credit card open after making payments as closing a credit card lowers your credit score.
There are upfront fees that come with these cards, which range from 3%-5% of the balance.
Shop for a balance transfer card that comes with:
Low upfront fee
18 Month Introductory Rate
Zero percent interest rate
4. Home Equity Line of Credit:
Home equity lines of credit can be used to pay off high-interest credit card debt, saving you thousands of dollars in interest. Home equity lines of credit come with lower interest rates than any other type of bank loan. BankRate.com estimates that the average interest rate on a home equity line of credit is only 5%.
The downside is that you are converting your unsecured debt into a secured loan, and this can be dangerous because if for some reason you default on the payment, you may lose your assets on the credit card debt.
5. Get your creditor to lower the interest rate
Don’t overlook this next method, because of how easy it is. Sometimes, the simple things in life are the most overlooked.
Call your creditor and ask for a supervisor. Remind them how many years you’ve been their customer and how good your payment history has been over the years. Now express to them that you are upset that they are charging you such a high interest rate, and mention an offer that the other bank is giving you. If your credit score has gone up since the time you first applied for that credit card, mention that as well.
Do some research and find a credit card company that is offering a low rate, and then you can use them as leverage.
Example: “Capital One is offering me a credit card with an 8% interest rate and 1% more than what you’re offering in cash-back. Can you please lower my interest rate so that I can pay more for yours?” Can I stay with the bank? Also, you’ll notice that my credit score has gone up since I first applied for a card with your bank two years ago.”
6. Debt Relief Programme:
A consumer credit counseling program Can lower your interest rates and get you out of debt in less than five years without hurting your credit score. All of your credit card debts will be combined into one consolidated monthly payment and the consumer credit counseling company then sends the funds to your creditors each month at a lower interest rate. This program has the least impact on credit score as compared to any other debt relief program.
A debt settlement program should only be used if you have fallen behind on credit card payments and cannot afford to pay more than the minimum monthly payments. This is because these types of programs can lower your credit score substantially and put a negative sign on your credit report. However, if your credit score is already in the pits, at this point you just need to focus on getting out of debt and avoiding bankruptcy in the earliest possible time frame. Once you are debt free, you can rebuild your credit score.
If you’re on the verge of bankruptcy, debt settlement can be a viable option that gets you out of debt in about three years and gives you one affordable monthly payment for all of your unsecured debts.
Need another option to get rid of high credit card balance, See further in this article.
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