You have a high credit card debt.
It feels like it’s drowning you, making it nearly impossible to keep your head above water, and the cost extends far beyond the financial.
And most likely it’s not your fault.
Overspending does occur, but it’s not the only cause of credit card debt. Emergency costs (eg medical bills, car repairs, etc.), job loss and/or divorce have sent countless families into a debt spiral.
No matter how you got there, what’s a man to do?
First some history
The roots of credit cards go all the way to ancient Mesopotamia, where clay tablets were used to facilitate trade. The first recognizable payment card was the “Charg-It card,” offered by Brooklyn banker John Briggins. The first Diner’s Club card came out in 1949; followed by American Express with the first universal charge card in 1959. BankAmericard® from Bank of America, first offered in 1966, was the first to allow revolving credit. Each of these evolutionary steps made credit a more convenient, more powerful tool. It also made credit card debt almost inevitable.
If that’s your current situation, here’s what you need to do…
If you find yourself in a pit, stop digging first!
It’s pretty obvious, unless you’re the one in the hole.
It will never get easier to dig out if you continue as you have done thus far. So, before we find ways to dig out of high credit card debt, stop digging deeper.
Cut your expenses so you don’t increase your debt.
With every purchase, ask yourself, “Do I really need this?” If so, ask yourself, “Can I defer the purchase?” If you can’t, ask yourself, “Is there a cheaper alternative?” the above, set reminders to pay at least the minimum for each card on time to avoid late payment and penalty interest.
Think of the huge cost of credit card debt. Let’s say you owe $5,000 on a 14% APR card, $1,000 on a 20% APR card, and $4,000 on a 24% APR card. Not to mention that this is an unrealistic example, according to NerdWallet, the average American household with credit card debt owes more than $6,000 and pays an average of $1029 per year in credit card interest. The average annual interest cost in the example above is less than $850.
If you don’t charge anything else and only make the minimum payments on each card, that $10,000 debt will cost you over $12,500 in interest and take nearly 18 years to pay off.
First Way To Dig Out – Lower Your Interest Rate To Speed Up Payout
Since the source of pain from credit card debt is their high interest rates, lowering that interest rate is your top priority. You have three options here:
Contact your card issuer(s) and request a rate cut. If you’ve been a good customer for a long time, they may agree instead of losing you to another lender. Consolidate your debt with a peer-to-peer loan (Lending Club, Prosper, etc.) 18-24 month 0% APR balance transfer offer (see eg Bankrate, Nerdwallet or Wallethub). Today, such offers come with a 3-5% fee, but they can offer a $200 bonus.
Let’s focus on the last option, because it’s probably the best for most people.
In our example, you transfer all your card debt to a new card at 0% APR for 18 months, a 3% fee and a $200 bonus after 3 months of on-time payments, and in 18 months your debt will drop by almost half .
Rinse and repeat, and after another 18 months, your debt will drop to $377. Even at 20% APR, you can pay this off in just 2 months.
Your total cost here, including the 3% balance transfer fee, is just $64; and your time to debt relief is just over 3 years. This saves you 99.5% of your interest costs instead of just paying the minimum, and you get out of debt 5x faster!
Even without the $200 bonus, you would be saving 98% in interest and would only need one more month to get out of debt.
Second Way to Dig Out of High Credit Card Debt – Pay More Than the Minimum
It is difficult. I know.
You struggle to make ends meet while paying only the minimum on each card. Adding even a little bit to every card payment seems impossible.
But if you can’t get approval for any of the above consolidations or rate cuts, the next path could still save you thousands of dollars and years on your journey out of debt.
As you can see in the charts below, you can save over $2350 and 3.5 years in debt if you pay just an extra $5 per month for each card.
$10 a month per card would save you over $3900 and almost 6 years.
$20 per month per card would cut your interest by $5850 and your time to final payout by over 8.5 years.
$50 a month per card, and you’re cutting nearly $8,500 and 12 years — over 2/3 of both interest paid and time.
An important note here is that as you decrease your balance, your minimum payments also decrease, making it easier to keep digging.
Third, optimize your card payments
In the example above, if you add just $15 ($5/card) to your monthly payments, for a total of $270/month, you’ll save $2350 and 3.5 years in debt. But you can optimize and cut even more!
First, keep paying the same $270 despite your minimum required payments gradually decreasing.
Second, use the “snowball method,” advocated by debt-busting guru Dave Ramsey.
Here you only send the minimum to all cards except the card with the lowest balance. Send to that person the difference between your $270 total and those other minimums. Once you’ve paid off that card, focus on the next card with the lowest balance. Once you’ve paid that off too, send the full $270 to the final card.
This method would save you over $5300 more than the $2350+ savings from the previous method. It will also get you out of debt almost a decade earlier!
If you can stay on track anyway, use the Avalanche method. It works like the snowball method, except it focuses on credit cards in descending order of interest rate. In our example, this saves you $180 and an extra month more than the snowball method.
It comes down to
If you are deeply in debt to your credit card, your first and immediate concern is to stop digging yourself deeper.
Then, consolidating your debt using a long-term 0% APR balance transfer offer (even with a 3% fee) can save you almost all interest costs and get you out of debt quickly.
If that’s not an option, cutting costs even just a little and increasing your payments above the minimum could save you thousands of dollars and years of debt service. Use the snowball or avalanche methods to save much more money and time.
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About the author
My career has taken many unpredictable turns. An MSc in theoretical physics, PhD in experimental high energy physics, postdoc in particle detector R&D, research position in experimental cosmic radiation physics (including a few visits to Antarctica), a short stint at a small engineering firm supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. In the meantime, I started other micro-enterprises and helped my wife start and grow her own marriage and family therapy practice. Now I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business financial goals.
Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.
This post 3 great ways to get out of high credit card debt fast
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