Paying Down Your Credit Cards
Credit card debt is a very big problem that is being faced by a lot of people who have been irresponsible and undisciplined in the use of their credit card.
Though some might have landed up with credit card debt due to some unfortunate event/emergency in their life, most people carry a credit card debt due to their own wrong doings
(i.e. wrong usage of their credit card debt). There are a lot of ways to pay off credit card debt and a lot of people do achieve this feat
(i.e. are able to pay off credit card debt). Surely, to be able to pay off credit card debt is really a great achievement in itself for not everyone is able to pay off credit card debt.
It takes a lot of discipline, restraint, planning and perseverance to finally pay off credit card debt. However, there is more to paying off credit card debt then just being able to pay off credit card debt.
Here we are talking about the life after you pay off credit card debt successfully. As mentioned before, of all the people that try to pay off credit card debt not everyone is able to pay off credit card debt
i.e. there are some failures too. However, some people fail after they have succeeded in paying off credit card debt.
These are those people who let themselves loose and go on a spending spree as soon as they pay off credit card debt. Soon, these people again land up with a credit card debt and are again trying to pay off credit card debt.
So, it’s not enough to just pay off credit card debt, it’s equally important to maintain a debt-free status even after you pay off credit card debt; only then can you enjoy a stress-free life in the world of credit cards. So learn your lessons well and do not let yourself loose on the path to another credit card debt.
Most of the rules that you followed when you were trying to pay off credit card debt, will also hold good after you have paid off your credit card debt.
Here is a quick synopsis of things that you should take care of even after you pay off credit card debt:-
1) Do not overspend. Yielding to the sale offers for something that you don’t really need, is a big mistake that leads to overspending
2) Always remain within 70% of your credit limit.
3) Make credit card bill payments in time and in full.
4) Don’t hold more than 2 credit card accounts (two are enough for anyone)
These are just very basic things; you can add more based on your own experience and knowledge.
Options To Consolidate Credit Card Debt
Consolidate Credit Card Debt
When managing your existing credit cards seems overwhelming, one effective way to ease both the financial and emotional burden of the cards is to consider the option to consolidate credit card debt.
There are several ways to consolidate credit card debt, and there are many benefits that arise from the choice to consolidate credit card debt.
First, what does it mean to consolidate credit card debt? One way to consolidate credit card debt is to take out a new personal loan and use the proceeds to pay down your existing credit cards.
Another way to consolidate credit card debt is to perform a balance transfer; this involves applying for a new credit card which will allow you to transfer all the balances from your existing cards onto this one new card.
Both of these methods to consolidate credit card debt involve opening an additional unsecured credit account. Another alternative to consolidate credit card debt is to look into borrowing against your home equity.
One way to do this is to take out a Home Equity Line of Credit (HELOC), which is credit line against the equity in your home.
You would then use the proceeds of this to pay down all of your credit cards. Another way to take advantage of the equity appreciation in your home to consolidate credit card debt is to refinance your existing mortgage.
As part of this refinance, you would use some of the proceeds to pay off your existing credit cards. This type of refinance is often called a debt consolidation refinance – you are consolidating both your old mortgage and your existing credit cards into one new mortgage.
Now that you understand how to consolidate credit card debt, it is important to understand the benefits of this strategy.
•Lower Interest Rate: Perhaps the most significant benefit that results when you consolidate credit card debt is that the new account that you are opening will carry a lower interest rate than the rates on the credit cards that you are paying off.
This means that it will cost you less over time to pay off your debt. If your credit is strong enough, you may even qualify for a 0% balance transfer, which means that you will not have to pay interest charges on your debt for a set period of time.
Moreover, a secured loan (e.g. mortgage refinance, HELOC, etc.) will generally have a lower interest rate than your existing credit cards.
•Faster Repayment Period: Along with saving money over the long term by lowering your interest rate, you will also more than likely be offered a lower monthly payment. This may be very attractive given your current financial situation.
However, if you are able to maintain your present monthly payment amount after you consolidate credit card debt, you will be able to pay off the new balance much more quickly than you would have with the old credit cards.
•Ease of One Bill: Another very important benefit that comes with choosing to consolidate credit card debt is the simplicity of having one monthly bill that comes with the new account that you have opened.
With multiple credit cards you are receiving multiple bills, more than likely with different payment due dates throughout the month.
Not only is this difficult to keep track of, it also increases the likelihood that you will miss a payment and end up paying late fees and incurring higher interest rates. It is easy to see how one monthly bill can lower your stress level considerably!
These are just some of the many attractive reasons to consolidate credit card debt. Be sure to examine all of the financing options available to you before deciding on the right one. You may be eligible for a loan or credit card with very low interest rate relative to what you are paying.
Be Smart With Your Credit Card Debt
Do you worry about reducing your debt? If yes then why are so many people only paying the minimum payment on their credit cards?
Is it because they think if they keep paying the minimum payment every month it will pay itself off within months? Well that is not the case and we have to sort this problem out and fast.
Credit card companies love the fact they we only pay the minimum payment every month. Why? because they are raking it in while the interest rates are crippling us. So what started out as a small credit card bill could escalate into thousands of pounds.
Say your credit card statement arrives your balance is £2000 the minimum payment is £40 which is 2% of your balance, if you keep paying just the minimum payment it’s the interest that most of your £40 is going to and not much to your bill.
The minimum re-payments have dropped as the credit card companies and banks originally charged 10%, but they found that customers where paying their debt back a lot quicker with the 10%.
So the way for them to get more interest out of us was for them to reduce the percentage of the minimum payment, making us think that they where helping us but in fact they where just getting more money from us by adding on more interest, as it will take longer for us to pay of the credit card bills.
So what to do if you find yourself in this situation:
Stop using your credit card, better still cut it up (in case you get tempted) Sit down and workout how much more you can pay than the minimum payment they’re asking for,
once you have worked out how much stick to it even when you see the minimum payments going down don’t be tempted to reduce your payment or your be back to square one.
If you have more than one credit card the best way to reduce your debt is once again stop using them. Work out which one has the highest interest rate and make the highest payment to that card.
Keep paying the minimum payment on your other cards and once the card with the highest interest rate is paid off, go to the next highest card and so on until all your cards are paid off.
You may have to tighten your belt in for a while but this will save you a lot of money in the long run.
Yes we all need credit cards and if you use them properly they are fine, but if you cannot afford to pay them off at the end of the month then this is when you get yourself into all sorts of trouble.
Constant Credit Card Payments
Are you trapped into making only minimum payments on your credit cards? I hope not.
Minimum payments decline as the balance on the credit card declines.
Let’s take a credit card with a $2000 balance at 15% interest to use as an example. You would expect to pay about a $40 (2%) monthly payment when you start making your payments:
By making the minimum payment only, it will take you 13 years and 11 months to pay off your credit card and you would expect to pay $2,126 in interest.
However, if you continued paying that $40 until the credit card was paid off, it would only take you 6 years and 6 months to pay off the credit card and you would pay about $1,100 in
interest.
You could save over $1,000 in interest and pay it off in half the time. This is what simply starting with a set payment and sticking to it could save. If you can afford that $40 payment when you start, odds are it won’t hurt you later.
Now, let’s take that a step further. What if you paid just $10 more, $50 instead of $40?
That same credit card could be paid off in 4 years and 7 months with only $740 in interest.
Here is how it breaks down:
Minimum Payments – $4126 total payments – 13 years 11 months
Paying $40 per month – $3100 total payments – 6 years 6 months
Paying $50 per month – $2740 total payments – 4 years 7 months
The fact is that every dollar you add to your payment goes toward the balance of the credit card.
I recently completed a Debt Elimination Summary for a couple that had $46,500 in credit card debt on 6 credit cards.
Most people would be considering filing bankruptcy in that situation but this couple were determined to pay it off.
Here are the results of the Summary:
They were already paying $785 per month on the credit cards. They decided they could afford to pay another $200 to eliminate their debt sooner.
Minimum Payments – The credit cards would never be paid off.
Paying $785 per month – $78,761 total payments – 8 years 5 months
Paying $985 per month – $66,059 total payments – 5 years 8 months
Would you have thought that you could pay off over $46,000 in credit card debt in just 5 years and 8 months? I’ve seen this done dozens of times. It can and it does work if you stick to it and quit using your credit cards.
If you have multiple credit cards and would like to pay them off as quickly as possible the best way to do this is to write down your credit card name, balance, interest rate and minimum monthly payment.
Then you must decide which credit card to pay off first. There are two schools of thought on this. Most experts believe that you should pay off your highest interest credit card first. You would definitely pay less in the long run.
However, if you need to see results quick to give you an incentive to keep going you could start with the credit card with the lowest balance.
Which ever way you choose, simply add as much money as you can spare to that credit card until it is paid off. Then take the amount you were paying to the first credit card and add it to the next credit card payment and so on until they are all paid in full.
Interest, late fees and penalties are wasted money. The only way to avoid this is to use cash to make your purchases when ever you can.
Better Credit Scores – 7 Tips
Credit scores are the equivalent of a financial report card. There is no way to avoid having credit scores since the Big Three consumer reporting agencies –
Equifax, Trans Union, and Experian – keep tabs on your credit situation daily. These agencies then report your scores to any lender who requests it.
A credit score is also called a FICO score. If you have a low credit scores you could be turned down for home or auto loans.
Your low score can also actually contribute toward your financial woes since it usually means higher monthly payments on any money you borrow.
There is hope, however! By taking the right steps, you can improve your credit scores significantly. Here are 7 tips for improving your credit scores.
Tip #1: Check your latest credit reports from each of the Big Three bureaus:
The first step toward better credit scores is to find out your current score from each of the Big Three consumer reporting bureaus.
You can find a number of Web sites that give you access to this information for FREE. To find one, run a search in your favorite search engine using the keywords free credit report.
Tip #2: Immediately correct any blatant mistakes:
Download and review each report item by item, circling any blatant errors you find. Of particular importance are inaccurate unpaid balance flags, the existence of credit accounts that you never opened, and incorrect information concerning your current address.
You must take each of these mistakes quite seriously and address them to both the relevant credit agency and, when applicable, the lender in question.
Tip #3: Pay your bills on time:
This is a common sense item, but people having credit problems often neglect it due to the snowballing nature of their debt situation. Paying your bills on time is very important, and nowadays even utility companies are reporting your payment history to the credit agencies.
Hint: to improve your score even more, make your monthly credit card payments before the end of the statement period. This has the positive effect of keeping any charges made that month from even showing up as a balance on your cards, thereby improving your ongoing debt-to-credit limit ratio (see Tip#4).
Tip #4: Improve your debt-to-credit limit ratio:
In calculating your credit worthiness, the Big Three credit agencies factor in heavily your debt-to-credit limit ratio.
As the term implies, this ratio is simply the result of dividing your total current credit card debt by the total credit limit across all of your cards. The ratio is always a number between 0 and 1, with numbers below 0.5 being most favorable.
There are two ways to reduce your debt-to-credit limit ratio. One way is to simply reduce your credit card balances by paying them down. Another option that many people fail to consider: request an increase in credit limit from your creditors.
Tip #5: Pay off debt, don’t just move it around:
While it can be a smart move to transfer debt from your higher interest credit cards to your lower interest cards, this does not substitute for actually paying down your overall debt. Just moving your debt from card to card is not going to improve your score.
Tip #6: Avoid closing credit cards just prior to a loan application:
Some people believe that closing out some of their credit cards immediately prior to applying for a loan is a good idea. However, this is not true.
On the contrary, it has the effect of suddenly increasing your debt-to-credit limit ratio, which is a credit score no-no. In fact, as long as you have the will power to use your credit cards wisely, it can be a good idea to keep multiple cards.
Then, use these additional cards from time to time, charging small amounts and then quickly paying them off. This reflects positively in your credit scores as your having a healthy ability to manage your debt.
Tip #7: Understand the influence that bankruptcy has on your score:
As a final note, beware that having declared bankruptcy in the past can make it especially hard to achieve better credit scores. Bankruptcies can stay on your credit report for 7 to 10 years.
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