How To Eliminate Credit Card Debt The Smart And Fast Way
First the shocker: Credit Card Debt is okay to have. Yes, it really is IF you are using your credit card as a form of an investment source to create more income. It might be a last resort type of fund sourcing, but it’s there if you have no other choices. Realize that unless you get in on an interest-free offer for x amount of time, you will be paying high interest with the majority of credit cards.
For everything else, credit card debt is “bad debt.” Debt that takes money out of your pocket, not money put in your pocket. It’s difficult to be Rich and Healthy when you have credit card debt. In the back of your mind you know you’re getting ripped off each time you use that card. This can cause health issues (especially when you get to the point that you can’t pay your credit card bills and other bills) and of course, it causes a drain on your riches. Something you do not want either!
So, what do you do to get rid of credit card debt the smart and fast way? First, to what you don’t do. You don’t cancel your account with the credit card company, at least in 99% of cases. Canceling your credit card account will cause your credit score to go down. I say 99% of the time because there is still justification in my opinion of canceling a credit card. I had one that had an annual fee of $60.00 that I would call every year to have waved. Last year, I called and they had sold my account to someone else and this someone else refused to wave the fee. Even after I escalated to a Supervisor, they wouldn’t wave it, so I canceled the account. This is a rare occurrence because usually, they will wave such a fee if you ask. Which brings me to my next point.
Call your credit card companies and ask a couple of things, and perhaps not in the same call.
- The first thing to ask if they can do any better on the interest rate? If you have other cards with better rates, be sure to mention it to them. Let them know that you enjoy their card and would like to continue doing business with them, but would like a better rate like the others are giving you. The worst they could say is “no” and the best is they may reduce your rate for a time period or permanently. Any reduction in interest rate is a saving to you an will help you pay off the card faster.
- The other thing you can do with a call to your credit card company is asking for an increase in your credit limit. Not for the purpose of spending it, but for the purpose of increasing your credit score. Do this on the same day with all your cards. Watch your credit score go up. The higher your credit score, the lower your interest rates when you go for a loan. Don’t do this though if you have no self-control, because you’ll end up sabotaging yourself in spending yet more money that you don’t have.
- Always pay on time. A late payment will cause your score to go down and many cards will increase your interest rate if done more than once. Some of them will increase your rate even if you do it just once. So to save yourself money, always pay on time.
- In the instance (not as a habit) forgot to pay your credit card bill on time, your credit card company will charge you a late fee. Call your credit card company and let them know that you don’t normally pay late and if they would remove the late fee. Most of them will when they see you don’t normally pay late. Some fees are as hefty as $30 when paid late, so be sure to ask to have it removed.
- Don’t carry a card with an annual fee. There are way too many companies that do not charge an annual fee, to keep one that does. If you have one that does charge you an annual fee, call them and see if they have another card you can transfer into instead that does not carry an annual fee. If they do not, when you are charged an annual fee, call and ask for it to be waved. Do this until your balance is paid off, and never use this card company again.
- Don’t carry a balance. Pay off your balance each month to save interest. (Many times easier said than done, go to the next bullet point if this is you).
- If you are already in a situation where you have a large balance and can’t pay it off there are a number things you must do to save yourself a bundle of money. 1. Stop using your card. Don’t cut it up, but if you can’t help yourself from using it, freeze it in water in a ziplock bag. I know it’s radical and sounds crazy but it works. 2. Pay towards your balance each time you get paid if you work a job. If you have a business, pay towards your balance every other week. If you have a job pay towards the balance each time you get paid. 3. Be sure to pay more than the minimum balance each time you pay. 4. If you get some unexpected money in, take a portion of it and pay towards your balance. If you do these things, your balance will be zero eventually. Don’t thaw out your card after it’s paid off. Leave it alone!
- If you have more than one card with a large balance that you can’t pay off in full, take the minimum balance you were paying on the card you just paid off and use it to put towards your other card that does still have a balance along with the payment you would regularly make, thus doubling your payment. For example Card 1, the minimum balance you were paying is $30 a month. Card two is a minimum balance of $70 a month. You pay off card one. Now the following month you pay towards card two your normal $70 plus the $30 you were paying on card one. So now you are paying at least $100 a month towards card two. This is known as the avalanche method. Better yet pay $100 a month over your minimum balance due plus the $30 you were paying for card 1. If you stick with this method you’ll see your balances going to zero before you know it!
- So which card do you choose to pay off first? Great question. Because spending money and saving money can also be emotional choose to pay off the lowest balance first. It will feel good once it’s paid off and encourage you to continue on with the plan on paying off the next card. If you choose instead to pay off the highest balance it will take longer and you may get discouraged and abandon the whole idea of paying off your credit cards. That is the last thing you want to happen.
- If both balances are just about equally the lowest, then pick the one with the highest interest rate to pay off first. So for example, if Mastercard has a balance of $1300 at 16% and Visa at 18% and has a balance of $1500, pick the Visa. But if the balance difference is large, then go with the lowest balance regardless of the interest rate.
- Many financial institutions will encourage you to consolidate your debt by taking out a lean on your home. Forget it! Don’t do it. Even though the interest rate is lower, what will happen more than likely is, you’ll take the house loan with the justification of the rate being lower, and pay off all your cards and then a couple of months later, you’ll start racking up credit card debt again. Now you’ll be in a deeper hole, with your house also on the table of losing it. Take the harder road and continue to pay a payment each time you get paid to your credit card. Because it is harder, your mind will appreciate the hard effort you put in and the accomplishment of paying it off that more than likely will have learned your lesson and not charge any more to it. Where with a loan with your home as security, it feels like free money and your mind will not grasp the danger involved until it’s too late. Bankers love to get people all tied up like this. It means more money for their personal vacation fund, and not yours. The banker will be sipping a cold drink on the beach in some beautiful paradise off your financial mistakes, and you’ll find yourself getting a second job just to keep up with the payments. Don’t do it! Make yourself Rich, not your banker. Only take out a loan on your house for income investment that will put money in your pocket, not out of it.
- The same goes for getting a personal loan with a lower rate. ONLY do this, if you are 100% sure you will not be using your cards after they are paid off. If you do choose this option, it will up your credit score because now your cards will have been paid off, or partially paid off, increasing the available balance. This could qualify you for a card with a lower interest rate that you can transfer the balance to.
- Use only 20% of your total available credit to keep your credit score high. So if your card has a total available credit of $2000, you would never charge more than $400 on it.
- Once you are disciplined in credit card usage (i.e never carrying a balance and only using it to make money, not spend money) then you can start calling your credit card company and ask for a credit increase. Do this once a year if they haven’t automatically given you an increase. Again you should only be using credit cards for a loan as the very last option of raising money for any type of investment. Preferably it’s best not to even use this option.
- Remember what the Bible says about debt: Proverbs 22:7 (NIV), “The rich rule over the poor, and the borrower is slave to the lender.”
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May your days be filled with good health, good friends, good food, and most of all; much love,
Dexter D Black
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