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Excessive credit card debt can be quite discouraging, and it might even cause you to panic. But hold off on panicking for just a moment because there is usually a way out.
There are many success stories throughout the UK of people who have managed to cut down their huge credit card debt in relatively short periods of time. Some have managed to pay off thousands in credit card debt in just a few years!
To pay off a huge credit card debt once and for all, an effective plan is necessary. The plan should be comprised of tactics that accomplish two main objectives:
- fast-track the repayments on your current credit cards
- reduce the overall interest paid
What follows are what I believe to be the five best tactics to help achieve those objectives and pay off credit card debt once and for all.
1. Identify potential balance transfer opportunities
A balance transfer allows you to transfer the existing balance on one credit card to another credit card. This can be an extremely useful strategy in a debt repayment plan.
If you can qualify for a 0% balance transfer card, this is often the best route. As the name suggests, a 0% balance transfer card has a 0% introductory offer where you are not charged any interest for a predetermined period. This interest-free period can last a few months, but in some cases can stretch to more than two years. This can make it easier to pay off your credit card debt.
An additional tip here is to look for a balance transfer card that also has a lower standard APR than your current cards. In this case, even if you’re unable to pay off the full debt before the interest-free period is over, your interest charges on the remaining balance will be lower than on your current card.
2. Identify your highest-interest credit cards and double the payments on them
Sadly, if you are struggling with a huge debt and it’s hurt your credit score, it might be hard to get approved for a 0% balance transfer card. If this is the case for you, then it would be better to prioritise paying off the cards with the highest interest rates first.
The faster you pay off the credit cards with the highest interest, the more interest savings you’ll make. This can be easily achieved by doubling your monthly payments on these cards. By doing this, if your original repayment period was one year, you could now pay off the debt in six months, saving you a whopping six months’ interest!
Start by making a list of your credit cards in descending interest rate order while also identifying the minimum repayments on each. Concentrate on paying off the cards at the top (with the highest rates) first. Double or triple the minimum repayments where possible to pay them off faster. You can then work down the list of your cards as you clear the balances.
As you do this though, be sure to make at least the minimum payments on your other cards. Missing payments on any cards could harm your credit and make your situation even more difficult.
3. Use unexpected or extra funds to pay off your debt
Once in a while, you will come across some unexpected cash or funds. These may include monetary gifts from family or friends, unexpected bonuses or raises at the workplace, or even a tax refund.
While it might be tempting to go out and do some shopping, do not use this extra cash to buy yourself an extravagant gift or go for that holiday you’ve been craving. These can – and likely should – wait at least until you have made a significant dent in your credit card debt.
Instead, commit all or a large proportion of this unexpected cash to your credit card debt repayment.
4. Use your savings
If you have a savings account that pays very little interest (one or two per cent), seriously consider using some of the money in this account to pay off some of your debt.
If you are paying 19% interest on a credit card debt, for example, paying it off first will give you a significantly better ‘return on investment’ than the few percentage points you’re getting from your savings account.
Consider this option in the proper context of your overall financial situation though. If you have a concern that you’ll imminently need those savings for day-to-day living expenses, then this particular tactic may not be for you.
One thing you may want to do if you take this approach is treat it as a loan to yourself. Once your debts have been paid off, repay this loan (perhaps with interest), to make sure that you keep your savings topped up.
5. Refrain from using your credit cards
Commit to going for several months without using your credit cards until you have considerably reduced your debt. Instead, use your debit card or cash for everyday transactions.
In the long term, this will make you more financially conscious and you might realise that you have been using your credit card to purchase items that you do not really need. Also, since you are no longer adding to your debt, it will be easier to offset your current credit card balance all the faster.
If you are currently facing excessive credit card debt, don’t panic. There is a way out, and it’s possible to pay off your credit card debt once and for all.
The key, as shown above, is to have a sound plan comprised of tactics that are oriented towards fast-tracking your repayments while at the same time reducing the overall interest you will pay.
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