3 ways to cut your credit card debt

You can start cutting your credit card debt by following proven strategies.

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Credit cards can be a valuable tool to build your credit while taking advantage of rewards and benefits. But if used irresponsibly, you could end up with a mountain of debt that can cripple your finances.

The good news is that you can cut your credit card debt by freeing up money in your budget, lowering your interest rates and payments, and following proven repayment strategies. Remember, you’re in control of your debt, and you can conquer it with the right plan, persistence and self-discipline. Follow the tips in this guide to start paying down your credit card debt.

And, if your credit card debt is already hampering you, you can start working on repairing your credit history with a repair expert. Get a free credit evaluation today.

Understanding credit card debt

Credit card debt is a type of revolving debt that allows you to borrow up to your credit limit. Generally, revolving credit is indefinite, so you don’t have to pay off the debt at the end of the loan term β€” typically at the end of your monthly billing cycle. By contrast, installment loan accounts are closed once the balance is paid in full.

If you carry substantial credit card debt, you may find it difficult to pay more than your minimum payments. As such, you could end up paying high interest and fees. Let’s say you have a $ 2,000 balance on a credit card with an 18% annual percentage rate (APR), and you make minimum payments of $ 50 a month. It will take you around five years to pay off the balance, including $ 1,077.25 in total interest.

Additionally, paying off debt may positively impact your credit score. As stated by FICO, your credit utilization rate β€” the amount of credit you’re using β€” accounts for 30% of your credit score. Many credit experts recommend keeping your credit utilization ratio below 30% to maintain a good or excellent credit score, but the lower your ratio, the better.

And if you have a poor credit score (or not enough credit history) you can work on improving it by working with a credit repair company. You have multiple repair options available to you.

3 proven ways to cut your credit card debt

The more you can pay above your minimum payments, the faster you can pay off your credit cards. If you’re on a tight budget, look for ways to free up extra cash to apply towards your payments.

Reviewing your expenses and cutting unnecessary spending is one way to create a cushion in your budget. For example, you might consider cutting streaming services you rarely use or a costly gym membership. It’s up to you to determine what luxuries you’re willing to do without and which are non-negotiable.

Increasing your income is another option to help you get rid of debt faster. If you have extra time, you may want to volunteer for overtime at work or pick up a side gig. You might also speak with your employer about a pay raise if it’s been a while since your last one.

Freeing up money will go a long way toward paying off debt. Following these three strategies can help you reach your goal:

1. Negotiate at a lower rate

One of the fastest ways to make headway with your debt is to call your credit card issuer’s customer service number on the back of your credit card and ask for a lower interest rate. Be prepared to state your case why you deserve a lower APR. Let them know how long you’ve had the card, your history of on-time payments and if your credit score is higher now than when you initially applied for the card.

If the representative can’t help you, ask to speak with a manager or supervisor with authority to make a decision about lowering your APR. If a supervisor won’t change your rate permanently, request a temporary rate reduction or ask what hardship options are available to you.

2. Consolidate your debt

Two of the most common ways to consolidate your debt are a debt consolidation loan or a balance transfer credit card.

Debt consolidation loan: A debt consolidation loan is an installment loan, typically with fixed interest rates and payment amounts. Locking in a fixed-interest loan could be a safeguard against rising federal interest rates.

Getting a personal loan may make sense if you have several high-interest credit cards. According to the Federal Reserve, from April 2022 to June 2022, the average interest rate on a 24-month personal loan was 8.73%, compared to an average credit card interest rate of 16.65%.

You might consider debt consolidation if you’ve been stuck making minimum payments and want a structured repayment plan. A debt consolidation loan will come with a set end date when your debt balance will be zero.

Before taking out a debt consolidation loan, check with your lender to see if they charge an origination fee to process the loan. These fees can range from 1% to 8% of the loan amount and could cut into your savings.

Balance Transfer Credit Card: With good credit, another option might be to apply for a balance transfer credit card. These cards usually come with a low or 0% APR introductory period, with promotions for some of the best cards lasting as long as 21 months. During the introductory period, you won’t have to pay interest charges.

With a 0% interest rate, your full payment amount can go directly towards paying down your balance, minus any fees or other charges on your bill. Even if you can’t completely repay your credit card debt before the introductory period expires, you could still save hundreds of dollars by paying off as much debt as possible during that time.

Remember, your credit card company will likely charge you a balance transfer fee, typically 3% or 5% of the transfer amount. If your debt balance is relatively low, the transfer fee could offset any savings you’d enjoy during your interest-free period.

3. Follow a debt repayment strategy

While making regular payments over the minimum two amount will help you reduce your credit card debt, it may be helpful to follow a plan, such as the debt avalanche or debt snowball strategies.

Debt avalanche method: This credit card repayment strategy involves paying off your highest-interest cards first. To do this, you’ll make minimum payments on all your credit cards except the credit card with the highest APR. Once you pay off the entire debt on that card, you’ll take the money you were paying on it and add it to the pot. You’ll now have more money to pay down the credit card with the next-highest interest rate. Repeat the process until all of your credit cards have a zero balance.

The primary benefit of the debt avalanche method is that you may save money by paying off your credit cards with the highest interest rates first.

Debt snowball method: The debt snowball strategy also involves making minimum payments to free up money and focus on paying down one card. In this case, you’ll direct your money towards paying off your credit card with the lowest balance. Once your credit card with the lowest debt amount is eliminated, you can take the money you used to make that card’s payment and use it to pay down your card with the next lowest balance.

With each card you pay off, the amount you can apply towards your debt grows like a snowball rolling downhill. Many people prefer the debt snowball method because the quick victories create momentum and serve as inspiration to keep going.

Of course, everyone has a unique financial situation. While some may use a debt avalanche method to save money and cut credit card debt, others may opt for a balance transfer card to take advantage of the interest-free introductory period. If your debt is overwhelming, you may want to turn to credit counseling or ask your credit card issuers about hardship programs. Credit repair experts are standing by to help.

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