Credit card debt is something that you want to pay down as soon as possible to avoid paying too much in interest charges. With the average interest rate at about 13 percent, you could be paying hundreds or thousands of dollars a month to your lenders without paying down your principal balance. What are some ways that you can reduce that balance?
Look Into a Balance Transfer
Transferring some or all of your current balances to a new credit card with a 0 percent interest rate can cut your monthly payments drastically. This will give you financial flexibility in addition to the ability to tangibly reduce your principal balance.
Refinance With a Personal Loan
It may be possible to consolidate your credit card debt into a personal loan. This may also lower your interest rate and allow you to put more of each payment toward your actual balance. Personal loans may be secured or unsecured depending on your needs and credit situation.
Make Extra Payments Strategically
When you do have the money to make extra payments, you should apply those payments strategically. For instance, you may want to apply them either to the cards with the lowest balance or the cards with the highest interest rate depending on your personal philosophy.
Ask for Debt Settlement or Forgiveness
It is possible that your credit card company will accept less than what you owe to zero out your balance. Debt settlement or forgiveness could come in handy if you have experienced a job loss or some other major expense that makes it impossible to keep up with your credit card debt. However, you may only be eligible if you have already missed a payment or two.
Stop Using Your Cards
You can’t reduce your current debt if you keep racking up new debt. Therefore, make sure that you don’t apply for new cards or keep making purchases or paying bills with your credit cards. Otherwise, you won’t reduce your monthly payment, your overall debt balance or your overall debt load.
When you make a purchase with a credit card, the goal is to pay off that balance as soon as possible. While you may not be able to pay the balance in full each month, it is critical that you pay as much as possible. Through balance transfers, consolidation loans and debt forgiveness, it may be possible to get a handle on your balances once and for all.
David Milberg is an NYC credit analyst.