If you have high credit card balances in 2018, you should prioritize payment and make it as soon as possible. The reason is that credit card debt is now more expensive than ever in the past, and if that’s 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 mostly made up of credit card debt, has reached $1.030 trillion, according to the latest Federal Reserve statistics. This is a historical record for our country.
2. Interest rates have already increased twice in 2018, and CME’s FedWatch tool suggests there will be another rate increase 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 first look at the most expensive option you want to avoid.
The most expensive credit card relief option
The most expensive credit card relief option is when you only pay minimum monthly payments. Never just pay minimum monthly payments on credit cards because you will end up paying the maximum amount in interest. For example, if you have a Chase credit card balance of $15,000 and your interest rate is 29%, by paying only the minimum payments, you would end up paying a total of $45,408 in interest alone and it would take you more than ten years to pay off the balance
1. Debt Snowball Method:
The debt snowball method of paying off your credit card balances proved to be the most effective credit card debt relief option in 2018, according to new research published by the Harvard Business Review.
With the debt snowball method, you pay off the credit card with the lowest balance first. Instantly after the initial credit card balance is paid off in full, your available monthly cash flow will increase. You will then use the additional funds to pay the next smallest bill. Once the second smaller account is paid off in full, your available cash flow will increase even more and keep growing, like rolling a snowball. Then use all that extra money to pay the third smallest bill.
This method works by using psychological principles. When a person achieves a goal, such as paying off his first credit card debt, the brain releases dopamine and he feels good. And you want more of that good feeling, so you’re motivated to keep paying 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 will stop you!
2. Debt avalanche method
The debt avalanche 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, you’ll most likely go this route, as it makes more sense from a technical standpoint.
Technically speaking, this route will save you more money than the debt snowball method, if you can successfully stick to the plan.
There is much controversy surrounding the argument of 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 snowball method of debt, quickly eliminating your smaller debts that have a balance of $1,000 or less, and then switch to the debt avalanche method to pay off the rest of your balances but the most profitable way.
3.Balance Transfer Cards:
You can dramatically reduce credit card interest rates by using a balance transfer card that earns no interest for 12 to 18 months. If you can pay your full balance on the balance transfer card during the introductory period when the interest rate is zero, you’ll end up eliminating 100% of your interest and only have to pay the initial balance transfer card fee.
Be sure to keep your credit cards open after you pay them off because closing a credit card lowers your credit scores.
There are up-front fees that come with these cards, ranging from 3% to 5% of the balance.
Look for a balance transfer card that comes with:
low initial fees
an 18-month introductory rate
a zero percent interest rate
4. Line of credit with mortgage guarantee:
A home equity line 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 have 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 trading your unsecured debt for a secured debt, and this can be dangerous because if for any reason you miss payments, you could lose your property to credit card debt.
5. Have your creditor lower the interest rate
Don’t overlook this next method, due to how simple it is. Sometimes the simple things in life are the most overlooked.
Call your creditor and ask to speak to a supervisor. Remind them how many years you have been their customer and how perfect your payment history has been over these years. Now explain to them that you are upset that they are charging you such a high interest rate and illustrate an offer that another bank is making to you. If your credit score has increased from what it was when you first applied for that credit card, mention that as well.
Do some research and find a credit card company that offers a lower 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 are offering in cash back. Could you lower my interest rate so I can stay with your bank? Also, You will notice that my credit score has increased from what it was when I first applied for a card with your bank two years ago.”
6. Debt relief programs:
A consumer credit counseling program can lower your interest rates and get you out of debt in less than five years, without affecting your credit score. All of your credit card debt will be combined into one consolidated monthly payment, and the consumer credit counseling company will distribute the funds each month to your creditors but at a reduced interest rate. This program has the least effect on credit scores of any debt relief program.
A debt settlement program should only be used if you are behind on your credit card payments and cannot pay more than the minimum monthly payments. The reason is that this type of program can drastically lower your credit score and result in negative scores on your credit report. However, if your credit score is already in the pits, then at this point you just need to focus on getting out of debt in the quickest amount of time possible and avoiding bankruptcy. Once you’re out of debt, you can rebuild your credit score.
If you’re about to file for bankruptcy, debt settlement can be a viable alternative that gets you out of debt in about three years and provides you with one affordable monthly payment for all your unsecured debts.
Need more options to get rid of high credit card balances? Take a look at this article below.