How to Get Out of Debt: 8 Tips for Paying off Credit Cards
Despite your best intentions, at some point in your life you may find yourself in debt. Maybe you’ve got a credit card balance or two or lingering school loans. The following tips for getting out of debt can help you efficiently chip away at your bank credit card balance and help you become debt-free once and for all:
- Debt tip #1: Budget before the beginning of each month. Create a detailed budget each month of projected expenses and income. This can reveal opportunities to allocate more of your monthly income towards debt. While this may seem tedious, budgeting can make a big impact by showing how quickly little things, like going out to eat, can add up. You should also put a set amount from each paycheck into an online savings account for emergencies.
- Debt tip #2: Make timely payments. Regardless of how much you can afford to pay toward your debt each month, always send your payments on time. Late payments give creditors the opportunity to raise your interest rate, meaning more of your payment goes toward interest and less toward paying down your balance. So whether you’re paying online or through the mail, give your payment plenty of time to get where it needs to go.
- Debt tip #3: Pay more than your minimum. Paying off credit card debt in full each month is ideal, but if you can’t afford it, you should make sure you’re paying more than your minimum each month. The more you’re able to pay off each month, the better, but aim for at least three times your minimum monthly payment. In the end, this strategy will reduce the total amount you pay to your lender since you’ll pay off your balance faster.
- Debt tip #4: Pay off higher interest rate credit cards first. Many financial experts have differing opinions on this getting out of debt tip. Financial counselor Dave Ramsey suggests using his “Debt Snowball Plan.” in an article entitled, “Get Out of Debt with the Debt Snowball Plan,” on his site, daveramsey.com. With this strategy, Ramsey recommends paying off the smallest debt first to create momentum which will eventually lead to debt-free living. While this program makes sense in terms of seeing immediate success, others suggest that you should pay off the credit cards with the highest interest rate first. In the long run, the latter will probably save you money in accrued interest. Either way, the main goal should be to make strides toward paying off your credit cards, so use a credit card payment calculator to find out just how much you can save by paying down your various credit card balances.
- Debt tip #5: Transfer high-interest debt to low-interest cards. If you have multiple credit cards to pay off, it may be worthwhile to look into a balance transfer. Credit card companies often offer low introductory balance transfer rates. However, most financial institutions charge a balance transfer fee, so contact your credit card companies to find out if you’ll still save money after taking into account this fee.
- Debt tip #6: Ask for rate reductions. You may find that your credit card company will reduce your interest rate if you simply call and ask. In a CNBC special called “Til Debt Do Us Part,” financial mentors encouraged individuals to get on the phone and ask for the reductions they wanted. More often than not, credit card companies offered some kind of reduction. Whether they will or not is unpredictable, but you won’t know until you ask.
- Debt tip #7: Find a credit card with a zero percent introductory APR. The interest rate you qualify for will depend on your credit history, but there are still great rates to be found if you’re willing to shop around. A temporary zero percent interest rate gives you the opportunity to pay off your balance without accruing additional interest for the first few months.
- Debt tip #8: Consolidate your debt. For homeowners who are looking to consolidate their debt, a home equity loan or line of credit could do more than lower monthly payments. Using a home equity line of credit could also lower your interest rate and offer potential tax benefits as well.
Nationwide Bank offers competitive credit card rates that can help you get out of debt. Call today to learn about low introductory APRs and balance transfer rates. By consolidating your credit card debt onto one Nationwide Bank credit card, you could save money by reducing the amount you’ll pay in interest. Contact our financial professionals to learn more today.
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