5 Steps To Paying Off and Reducing Credit Card Debt

Here is how you can pay off your credit card debt by following these 5 steps systematically. They will greatly help reduce the burden of your credit card debt.

Meeting the Minimum Payment On Your Credit Card To Pay Off the Debt Gradually

It is important to meet the minimum amount due on a credit card bill every month when you are trying to pay off debts on your credit card. This is specially true if you facing a debt on multiple credit cards. You can continue to pay the minimum amount without your account being considered late. Failing to do so will probably result in a late fee being levied on you in the next billing cycle. Your credit card issuer may also decide to increase the interest rate or cancel the credit card altogether for failing to comply with the terms and conditions of the credit card.

Paying off a credit card debt just by making the minimum payments can take very long time. You will also pay a large sum as interest by the time the debt is paid off. For this reason a consumer is encouraged to make a payment that is more than just the minimum amount due. That way not only will you not risk going into default but will gradually work to its paying off the credit card debt completely.

Failing to make the minimum payment will probably result in the credit card account as being reported as late to the credit bureaus. This will affect your credit score and your future prospects of getting good deals on credit cards.

Get Current on Any Delinquent Credit Card Accounts

Getting late on a credit card account and then not making any effort to get current on it can result in a debt that quickly spirals out of control. Credit card debt has the highest amount of interest-rate than any other kind of loan. If you have an outstanding balance on a credit card that you have not been making at least to the minimum payment towards them the interest rate and the finance charges can severely mount up the total amount due. Not only will you find yourself in a position where a small amount of initial balance has swelled into a very large sum of money but also do damage to your credit score when the credit card issuer reports the late account to the credit bureau. Each delinquent accounts stays on the credit report for a period of seven years from the date that it was first reported. This can have a similar impact on your credit score as far as the decision of future lenders on a credit application.

Worse still, if your account gets delayed by more than 180 days the creditor might write off your account and pass off the debts to a collection agency for collection.

You should try and at least make the minimum payment due on your credit card and put away whatever money you can towards reducing your credit card debt.

Bringing Maxed out Credit Cards Under the Limit

Bringing maxed out credit cards under the limit is important because the extra fees and charges that are levied on maxed out credit cards will further increase the credit card debt and make it more difficult to pay them off.

Maxed out credit cards not only do damage to the credit score of the consumer but also viewed upon unfavorably by the lenders. While calculating the credit score for consumer most of the credit calculation models consider something called the debt utilization ratio. The debt utilization ratio is the difference between the total amount of credit available to you and the credit that you utilize. The credit scoring model looks at the total amount of credit available to you as well as individually on each credit card. If any particular credit card is maxed out and close to its credit limit, it will have a negative impact on your credit score. Being close to the credit limit of a credit card is viewed as being high-risk. It is presumed that the consumer is overusing credit and flirting with defaulting by not being able to play the high balance. Defaulting on the high balance means more of a loss to the credit card issuer.

Ideally the balance on a credit card should be maintained at about 30% of the total credit limit of the card.

Maxing out your credit card also put you at the risk of going over the limit at any point of time. This is considered to be a high risk by both the credit scoring model as well as the lenders. Whenever you go over the limit your credit card issuer will charge you an extra fee and will continue to charge it to the time that you bring in the balance back under the limit. Once a credit card is over the credit limit, bringing it back down within the limit can be slightly difficult as you will need to pay more than just what is overdue because a part of your payment will go towards paying the over the limit fee.

Paying Off Existing Balances On Your Credit Cards Before You Charge Them Again

You may have more than one balance on a single credit card or have more than one credit card with a balance. You should attempt to reduce the balances as much as possible. Not only should you not have a balance that is more than 30% of the credit limit for a good credit score but also work towards eliminating the balances that you rotate every month in order to save yourself the interest and finance charges.

Reduce the balances to zero before you start making further charges to the card otherwise you may find it very difficult to get out of the credit card debt. Many people have had their credit card debt spiral out of control because they kept rotating their balances along with making additional charges. Different credit card issuers calculate the finance charges in different manner. Some will charge the new purchases with interest along with the original balance. Some will not give a grace period for new purchases in a new billing cycle if you are carrying a balance from the previous cycle making them accrue finance charges from the day that you make them. For this reason pay close attention to the balances that you have on your credit card and completely pay them off before moving on to make new charges.

Paying Off Credit Cards In the Order of Highest or Lowest Interest Rate

If you have a credit card debts that differ in the interest rate that is levied on them, it is better to make a choice as to which ones you are going to pay off first.

There are two common approaches that are used to pay off credit cards. One is to pay the balance with the highest interest rate first. The advantage is obvious. You will save more money that you would otherwise have to pay as interest charges.

The second approach is to tackle the smallest credit card balance first. The advantage is that the smallest debt is the easiest to pay off.

Both these approaches have their own advantages and dis-advantages.

By paying off the smallest credit card balance you are freeing up extra cash that will help you tackle the next higher balance. This process is continued so on and so forth till all the balances are paid off. Not to mention that fact that every time you manage to pay off a credit card balance in full, it leaves you with a feeling of self-worth and confidence that you can do what you have set out to do. This is the easiest method and has more chances of succeeding than if you start with tacking the highest balance first.

Of course, some people like to get the biggest credit card balance out of the picture first as that is the cause of maximum worry for them.

What to Do When the Minimum Payment on Your Credit Card Increases

It is important to meet at least the minimum payment on your credit card every month. The minimum payment on a credit card is calculated by including the interest rate as well as the finance charges. As long as you meet the minimum payment every month your credit card account will not considered to be in default. Sometimes the minimum payment on a credit card can increase for various reasons. This could be due to an increase in the interest rate charged by the credit card or it could be due to a previous default on a payment due to which the credit card company has deemed you a higher risk and increased the interest rate on your credit card. Here is what you can do to combat the increase in the minimum payment on your credit card:

 Inquire after the Credit Card Company Has To the Reasons behind Increase In  The Minimum Payment

The first thing to do would be to inquire with the credit card company asked why the minimum payment on your credit card has increased. Once you have figured out the reason, you may be in a position to negotiate order request a reversal of the increase. If the reason is a previous default or late payment on your part, you may be able to get the increase in the minimum payment reversed if you can justify why you were late on that payment. If being laid on your credit card is not a common occurrence than the credit card company will probably reverse the increase in the minimum payment. If the reason for the increase in the minimum payment is a change in policy or interest rate which has affected not only you but others credit card users as well then he may have no choice but to either meet the increased minimum payment every month or do a balance transfer to a lower interest credit card.

Continue to Meet the Increased Minimum Payment on Your Credit Card Every Month

When  the minimum payment on your credit card increases, it is important to continue to meet the minimum payment every month. In the time that you can find a solution by having to increase reversed or migrating to another door interest credit card, you should make the minimum payment on your credit card so that your account is not considered to be in default. Stopping to make your minimum monthly payments on a credit card will result in the default being reported to the credit bureaus which will adversely affect your credit rating. This will further hinders your ability to get a good interest rate on your credit card in the future and may also result in the minimum payment and interest rate going up on your other credit cards. Also, if you are going to be looking for zero interest rate or a lower interest rate credit card to do a balance transfer, having defaulted on the previous credit card was severely hinder your chances of being able to do so.

Switch over to Another Lower Interest Credit Card or Do a Balance Transfer

If you cannot manage the new minimum payment on your credit card after the increase then you do not have any other option but to switch over to another credit card that has a lower interest rate. If you have multiple credit cards, it may be possible to start using another credit card which has a lower interest rate and minimum payment. This does not mean that you should close the current credit card account as that may have an adverse effect on your credit rating. You should just stop using the credit card with the highest minimum payment for starters. Another option is to do a balance transfer to a credit card which you already own or to a completely new credit card.

The advantage of switching over to a completely new balance transfer credit card is that many times yo.u get promotional offers that offer 0% interest rate for a certain period of time which can save you a lot of money. If you can pay off the balance that you transferred during this promotion. You’ll save a lot of money as interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reasons Why Should You Pay off a Credit Card with the Highest Interest Rate First?

Usually when advising people to a off their credit card debt, the two approaches commonly taken are to either pay off the credit card with the highest interest rate first order start with the credit card balance that is the least. These are the advantages of starting with the credit card that has the highest interest rate and working your way down to paying off the balance on the other credit cards accordingly.

 Paying off the Credit Card with the Highest Interest Rate Allows You to Save Money on Interest

The reason why you should pay off the credit card with the highest interest rate first is that you will save the maximum amount of money that would otherwise be paid to the credit card provider as interest charges and financial fee. Using the method of paying off the credit card with the highest interest rate first and working your way down to a credit card with the next highest interest rate saves you the maximum amount of money and is the cheapest.

 Paying off the Credit Card with the Highest Interest Rate First Will Help You Get Rid of Credit Card Debt Quicker

The second reason is that it is also the shortest method to take. As opposed to paying off the credit card with the lowest balance and then working your way up to the next higher balance, if you work your way down from the highest interest credit card you will complete paying off all your credit cards sooner.

The best way to pay off credit card debt on multiple credit cards  needs to be a balance between the balance on a credit card as well as the interest rate. The higher interest rate credit card may have the least amount of balance whereas a credit card with a lower interest rate may have a substantially large balance on it. This means that even though the interest rate is low the amount of money that you paint on the lower interest credit card is more than the higher rate credit card simply because of the higher balance on it.

The best way to pay off the debt on your credit card will be based on a mix and match of the two approaches of paying the highest interest credit card and the credit card with the highest of the least balance. You need to sit down and do some calculations to figure out which approach lets you save the maximum money as well as pay off the credit card debt quickly.

How To Start Paying Off Your Credit Card Debt

The first thing that you need to do to start paying off your credit card debt is to start making more than minimum payment on your credit card monthly bill.

Meeting the monthly payment on your credit card will allow you to gradually and systematically pay off the balance on your credit card. For this you need to is calculate the total amount of money that you owe on your credit card. Then he need to sit down and carefully calculate all reliable means of income. Then you need to calculate your essential expenses. This will need making of a household budget. Making a budget is simpler and yet more important in the situation than you think. Once you have this data ready you will know how much from your income you can put towards reducing the credit card debt.

Let’s call this money the debt reduction fund.

Make the minimum payments on all your credit cards, while making the more than minimum payment on the card that you want to pay off first. This is usually and should be either the card with the highest interest rate, or the card with lowest balance. The payment on this card should be the sum that is left from the debt reduction fund, after making the minimum payments on all the credit cards.

When you pay off one credit card, move on to the next and so on and so forth till the debt is paid off.

Paying off your credit card debt without asking for a credit card debt settlement from the credit card company is better for your credit rating and your credit score.

What Is the Fastest Way to Pay off My Credit Cards?

What is the best method of paying off your credit card debt ? Is it paying off the credit card that has the highest interest rate on it or Paying off the credit card that has the smallest debt on it so that you can be relieved of one credit card debt completely more quickly?

 Paying off the Credit Card with the Highest Interest Rate First

While there are two methods of paying off credit card bills the quickest method to pay off all your credit cards involves paying off the credit card with the highest interest rate first. You started deciding how much money you want to put towards paying off your credit card debt every month. Then you pay the minimum on all your credit cards and take the extra amount of money to pay off the balance on the credit card with the highest interest rate. Once you manage to pay off this credit card you’ve shifted attention to the credit cards that has the next highest rate of interest diverting all the money that you are paying on the trust credit card to the second credit card. So the money that you pay on the next credit card will be the total sum of money that you were paying on the first credit card loss the minimum payment that you are already making on it. In this way you go down the hierarchy of interest rate.

While this method is the fastest way to pay of all your credit card debts and save the maximum amount of money in interest and financial charges it may feel like it is the longer route to take.

Sometimes the credit card with the highest interest rate may also be the credit card with the highest amount of balance. This means that it made me quite a while before you finish paying off your first credit card completely.

This can result in making many people feel that it is a slow process. But actually it’s not. While dealing with a credit card that has a high interest rate as well as a high balance may take longer the process will quicken dramatically as you move down the hierarchy off high interest rate credit cards.

 Credit Card Debt Snowball Method Of Paying off Your Credit Card Debt

Another popular method of paying off your credit cards is the credit card debt snowball method which involves paying off the credit card with the lowest balance. This method is usually a little is slower and involves a higher cost although it provides quicker results since you will be able to pay off a credit card with the lowest balance faster.

2 Methods Of Paying off Credit Card Debt – Highest Interest Rate Credit Card Vs. Lowest Balance Credit Card

There are two main methods that were used to pay off the credit card balance.You can either decide to pay off the credit card that has the highest interest rate first policy and decide to start with the credit card that has the lowest balance. Both have their advantages and disadvantages.

The first method is to pay the credit card with the highest interest rate to save the maximum amount of money on interest rate and financial charges.

This method of paying off the credit card debt works of the best if the credit card with the highest interest rate also has a large amount of balance and. Paying off this credit card will allow you to save a large chunk of money that would otherwise go towards the interest. If the credit card with the highest interest rate has a  minimal balance on it then you might be better off in choosing to pay off a credit card that has a large balance even though the interest rate on that credit card is  less. This is because owing to the  large chunk of balance, the interest that you need to pay will be larger nevertheless in spite of the lower interest rate.

In the method of highest interest credit card payment you pay off the credit card with the highest interest rate first and then moved to the next successive card with the next highest interest rate.

The second method is to pay the credit card with the lowest amount of balance so that you can pay off one credit card very quickly and then work your way up to the credit card with the next higher balance.

This method allows you to pay each successive credit card quickly allowing you to field more progress and motivated.

The main advantage of this method is that it allows you to quickly pay off your first credit card and makes it easier to deal with the credit cards with large balances. Once you have dealt with the credit cards with the small balances, you can shift those payments to tackling larger credit card balances.  Going straightaway for a credit card with a large balance might make things difficult for many people who are already under the burden of multiple credit card debt and finding it difficult to tackle them all together.

In both of these two methods as you pay off once is a credit card you divert the entire sum of money that you were paying on the previous credit card to the next credit card that you want to pay. Whenever you are paying off one credit card you continue to make the minimum payments on all the rest of the credit cards so that no debit card is reported as late and none of your accounts could delinquent which is bad for your credit rating.

In my opinion, the best approach to paying off credit card debt on multiple credit cards is a mix-and-match of choosing which credit card to pay first. The mix-and-match has to be between the credit card with the largest or the smallest balance and the interest rate. Doing some simple calculations will show paying off which credit card first  will allow you to save the maximum amount of money as well as which approach can help you to get out of credit card debt the fastest. Out of the above two mentioned approaches, starting with the credit card with the least amount of balance does come recommended because it makes the entire process of paying off your credit card debts much easier.

 

Credit Card Snowball Debt Method of Paying off Your Multiple Credit Card Debts

Credit card Snowball Debt method of paying off your multiple credit card debt tells you to pay off the credit card with the least amount of balance first regardless of the interest rate.

This method aims to make the process of paying off your credit card debt easier by reducing the burden gradually.

By  tackling the smaller credit card debts first you are in a better position to tackle larger balances later on.

The credit card debt snowball is a method of paying off your credit card that has been popularized by financial advisor Dave Ramsey. This method suggests that you pay off the credit card with the lowest balance first. This method has gained popularity because it enables a person who faces debt on multiple credit cards to complete payment on each individual card quicker. Since you begin by paying the balance on the credit card which has the amount of balance you will take it faster. You then work your way up to a credit card with the next higher balance. This method does not consider the rate of interest that is active on the credit card only the balance. The credit card with the lowest balance may also be a card with the lowest amount of interest or the highest. The point of this method is that since you begin to pay off your credit cards one by one quickly it provides a great deal of motivation to continue with the efforts of becoming debt free.

They the method of paying off your credit card is the high interest rate method which involves paying off the credit card with the highest interest rate. This method is usually takes less amount of time to making you credit card debt free and says more money on the interest and financial charges.

Should You Pay off the Credit Card with the Highest Interest Rate Or the Credit Card with the Least Balance First

 The two most popular methods of aim of and reducing your credit card debt are either paying off the credit card with the highest interest rate first or paying off the credit card with the lowest balance.

Both these methods have their advantages and disadvantages. Read more to learn about these two methods of reducing your credit card debt and which one suits you better.

Paying off your overdue credit card

Debt and balance works best if you employ an organized approach. Making minimum payments on your credit card and allocating any extra money towards up all your credit cards at the same time can have a miniscule effect in reducing the amount of credit card debt. You should not attempt to tackle the credit card debt on all your cards at the same time. There are two main approaches that you can use to pay off your credit card bill that work the best.

Method #1 — Paying off the Credit Card with the Highest Interest Rate

This method of paying off your credit card requires you to pay off the balance on the credit card with the highest interest rate first. This is the credit card that you tackle most aggressively. You continue payments on all your credit cards by paying the minimum amount due. Now card should have been missed out on or the payments made late.

When the credit card with the highest interest rate has been completely paid off use which the amount that you are paying on that card to the next card with the next highest interest rate. So what you will pay on the second card is the amount that you are paying on the first credit card as well as the minimum payments that you were already making on the second credit card. The amount of money that you pay every month will remain the same even though you complete paying on credit cards one by one. You simply shift the payment amount from one credit card to the next. This method is the most efficient way of paying off your credit cards as it will pay off your debt faster. It also saves you the maximum amount of money on interest fee and financial charges.

Method #2 — Paying off the Credit Card with the Lowest Balance ( Also known Credit Card Debt Snowball Method )

This method involves aim of the credit card with the smallest balance first. The main advantage of this method is that you will begin to pay off your credit card debt. Since paying off a credit card with the lowest balance will take the least amount of time you will get a moral boost of becoming debt free from at least one credit card. This method provides a high level of motivation to continue with your credit card payment. In the earlier method you were paying off the credit card with the highest interest rate to save money on interest and financial charges. However if the credit card with the highest interest rate also happens to be the credit card with the highest balance then it could be a long time before you complete paying off the card completely. This could be discouraging for some consumers. Although the second method of paying the credit card with the lowest balance first will take you slightly longer than the first method and be a little more expensive it has a tendency to keep you motivated.

Does Balance of a Closed Credit Card Accrue Interest Charges

The question is whether or not will you be charged and interest on the balance on a credit card accounts that has been closed. The answer is yes.

You will have to pay interest on any balance on your credit card even though the credit card account has been closed. The only thing that changes when you close a credit card account is that you cannot make any more charges on the credit card. You are still liable to pay off any debt of balances that you had on the credit card prior to closing.

Having a balance on a closed credit card account also affects the credit rating. When you close a credit card account the credit limit on that card is immediately reduced to 0. This decreases your total credit limit. But since you continue to have a balance on that credit card your credit utilization remains the same. This means that your credit utilization ratio will become higher when you close a credit card accounts that has a balance on it. While closing any credit card has a tendency to increase your credit utilization ratio, closing a credit card that still has a balance on it as a worse effect on the credit utilization ratio which is bad for the credit rating.

How to Avoid Being a Credit Card Junkie And Reckless Credit Card Use

If you have read the previous post and determined that you have a problem with being a credit card junkie than here are a few simple things that you might want to implement immediately in order to undo or reduce damage done to your financial standing.

The first thing to do is to stop taking on any more credit cards. If you are approached in departmental stores or gas stations or received fee credit card offers in the store may you should just put them away and tear them up. Credit card companies send over 3 billion credit card solicitations every year. Most of these a preapproved based on information present in your credit report. If you suspect that you might be a credit card junkie reduce the temptation to use the credit card by limiting the number of credit cards you have.

Avoid places where you might be tempted to shop. If you have known yourself to be an impulsive and susceptible by your with your credit card then it is time to avoid going to shopping malls and other places where you are tempted to buy without reason. Head out with your credit card only when you have a plan purchased in mind.

Stop shopping online. Stop ordering through catalogues. Shopping online and having shopping catalogues doesn’t in the home can be a constant reminder of what you can buy. It can be hard to resist when the visual of something you can buy is constantly present. You can avoid the temptation to shop online why not visiting common shopping sites. You can stop the temptation to order through catalogues why opting out of receiving catalogues for the next five years or writing to Direct Marketing Association, Mail Preference Service, P.O. Box 643, Carmel New York 10512 and asking them to read be removed from their marketing lists.

Increase your awareness towards advertising. A consumer is bombarded with advertisements in hundreds and thousands from every possible means of media which includes television, radio and even the mobile phone. As soon as you build up your awareness towards advertising and how it is meant to play on the mental psyche of a human being, you will be better armed to resist the temptation that these offers can bring about.