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What Is the Best Way to Get Out of Credit Card Debt

Each person’s debt is personal and specific to them. Just as there are many reasons why people get into debt, there are many ways people can get out of debt. Not all of them work for everyone, but you can find one that works for you.

Getting and staying out of debt requires hard work, but there are some tried and true methods that have worked for lots of people. After all, the best way to get out of credit card debtis the one that works for you!

The One Big Thing to Get Out of Credit Card Debt

The important part of all of these tactics is that you must pay more than the minimum payment. That is what helps you cut down debt much faster. Just paying the minimum monthly payment may keep you from accumulating late fees, but the debt you are carrying on the card is racking up interest daily, which can make it virtually impossible to eliminate the debt over time.

Even though your interest rate may be given as an annual percentage rate (APR), it is being charged dailyat 1/365th of APR. So, that means that by the end of the month, your total debt will have grown by 1/12 of your APR. So, if you have 24% APR, your debt will grow by 2% each month.

Some cards have monthly minimums that are only 1 or 2%, so If you only make the minimum payment, your debt will never go down!

Now that you see the importance of paying more than the minimum payment, let’s look at a few different strategies and find out the best way for you to get out of credit card debt.

Snowball, Avalanche or Shovel: Methods for Paying off Debt

So, you have multiple credit cards and each one has a different balance, interest rate and credit limit. While you’ll need to pay at least the minimum on all your cards to avoid late fees, you’ll want to concentrate on paying more than the minimum on one card at a time. Which credit card should you pay off first? There are three options, each with their own pros and cons.

Snowball- If you want to snowball paying off your debts, you’ll start with whichever credit card has the lowest balance.

With feelings of anxiety and fear that accompany being in debt, it can be very important to keep a positive outlook as you go through digging yourself out. The snowball method allows you to completely eliminate one card’s debt relatively quickly and give you a feeling of accomplishment.

However, paying off your debts from least to greatest could cause you to pay more in the long run. If your largest debt also has the largest interest rate, you’ll end up paying a lot more over time in interest because that debt will get paid off last. For some people, though, being able to cross credit card debts off completely allows them to keep psychological momentum throughout the debt paying process.

Avalanche- To address one of the downfalls of the snowball method, you could avalanche your debt by paying off the card with the highest interest rate first.

By paying down a debt with a high interest rate, you can save a substantial amount of money in the long run. Interest is one of the primary reasons that debts take so long to pay off, so why not start with the debt that has the highest interest rate?

The only real downside to the avalanche method is that you have to be disciplined since you may not pay off this debt very quickly. It can be tempting to try to tackle a card with larger debt after paying down a portion of your high-interest credit card. But if you stop paying down the high-interest card, the debt will creep back up and undo all of the hard work you put in. So, if you decide to go this route, you’ll want to set up a system to track your progress and let you see the accomplishments you are making since you may not have the quick gratification of the snowball method.

Shovel- If you have concerns about your credit score, you may consider the shovel method.

This method involves paying down credit cards with the lowest credit left. As you get closer and closer to carrying a balance that maxes out your credit card, it can hurt your credit score. Keeping cards from carrying a balance that is close to the maximum credit can help you avoid taking hits to your credit score.

This method is different than the other two because you may switch to paying down another card once you reduce the debt on one card but haven’t fully paid it off. That’s because your goal with this method is to try to back the balances on your credit cards away from the max credit line. Once you have reduced it to around half on one card, you could consider working the debt down on another card that is almost maxed out. This juggling act can be very difficult and you are still getting charged interest on the debts you haven’t paid off completely, so it is even more important to carefully track your progress with this method.

When to Consider Debt Consolidation

If you have tried these methods and are still struggling, then you may want to consider debt consolidation. Debt consolidation can be more effective than trying to pay down your debts on your own, and could be the best way to get out of credit card debt if the strategies above don’t seem to be working. Under this scenario, while you are consolidating all of your debts under a single payment, you should look to consider a partner that has strong relationships with creditors across the country to negotiate the best repayment program on your behalf. One that fits your lifestyle as well as your budget. And remember, look for a debt consolidation partner that has a strong BBB rating and is willing to work with you on a personalized program.

If you want to learn more about credit card debt consolidation, contact CareOne today.

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