4 Tactics That Could Help You Pay Off Your Debt Once and For All
A lot of people aim to spend less and save more. However, you may not be able to do that easily unless you pay off debts. Americans collectively have more than $1 trillion of debt. The individual balances only increase when the holidays come. According to an annual post-holiday debt survey conducted by MagnifyMoney, Americans accumulated around $1,325 worth of holiday debt in December 2019.
Out of those who were surveyed, more than three-fourths said that they won’t be paying their balance in full by the end of January. This means that interest charges will also add up.
Using credit cards is now one of the most costly ways to borrow funds as credit rates have now skyrocketed to about 17.4% on average. It’s slightly lower than the record-high of 7.85% in June. It’s also still one of the most popular types of debts in the country, beating auto loans, mortgages, medical debt, and student loans.
According to Charles Schwab Foundation board chair and president Carrie Schwab-Pomerantz, having debts is a major obstacle to reaching financial goals. Schwab says that the borrowing part is easy, but the paying-back part is hard.
To help you handle your balance more effectively, here are some tactics you can use to finally clear off the debt.
Create a Repayment Plan
The first thing you have to do is to identify what you owe. After figuring it out, choose between two methods to solve your debt problem: “debt avalanche” or “debt snowball”.
When you use the avalanche method, you list down your debts according to the interest rate. Arrange the items from the highest interest rate to the lowest and prioritize the highest ones. As for the snowball method, you first pay the smallest debts regardless of interest rates.
What’s important in this method is that you’ll gain momentum from multiple paid-off debts, which will motivate you to keep going. For Schwab-Pomerantz, planning on how you’ll pay your debts will help you focus more.
Make a Balance Transfer
Experts usually suggest moving your balance to another card that doesn’t have an interest. This is so you can save up on charges for interest. According to CPA Paul Miller, who manages the Whitestone New York-based Miller & Company, it’s a good time to execute a balance transfer because most are offering o% interest for a year or more. However, if you can’t pay the balance in full, there will be a new interest rate that will be applied.
Ask Your Card Issuer for a Break
You can reach out to your credit card issuer directly and ask if they can give you a break on interest rates. NerdWallet credit cards expert Sara Rathner says that consumers have more power than they realize. In a study conducted by CompareCards.com that lasted over year, more than three-quarters of the cardholders got the lower rate that they asked for. Most of them got reductions of 5-6 percentage points.
Keep Your Credit Cards Away
To avoid temptations to use your credit cards, keep them inside a drawer, or hide them if needed. Make use of your debit card for purchases and make it a point to only use the cash that you currently have. Policygenius deputy managing editor Hanna Horvath advises people to do what they need to do to avoid increasing their debts while still focusing on paying them off.
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