Pay off high interest rate credit cards first.
For many of us, credit cards represent ground zero of our debt troubles. Used cautiously, credit cards are a great way earn some cashback on purchases, maybe help on your next vacation with all of those airline miles. However if used recklessly, credit cards become a weapon of mass destruction -- to your credit rating, your saving plans, and even your general happiness.
Reduce your payments
Even if you don't have the cash to make a big dent in your credit card debt, lowering your interest rates NOW can go a long way. Most people don't realize you can negotiate with your credit card company or don't realize the savings that are to be found in lower interest rates. Take for example, you bought that new Dell PC with that new LCD monitor on your new credit card for $1,200. If you made the minimum payment of 2% at 19.8% interest you would have paid $5,065 alone in interest (total cost: $6,265) and it would take you a total of 29.6 years to pay off. So how do we lower our payments?
- Ask your credit card for a lower rate: Credit card companies are usually very receptive to lowering their rates. If for only one reason, and that's it's much cheaper for them to lower their rate for you then to have to go through collections and legal fee's to try to get your money...money that may not be there. Credit card companies lose millions of dollars each year to people who can't pay their bill -- one reason why interest is so high in the first place. You can do this in one of two ways. The first is to call them and tell them you're thinking about changing to another credit card company with better terms (be sure to actually know of another card with better terms as your usually asked which one) and second way is to just come out and tell them you're having problems making payments month to month and would to know what they can do to help.
- Consolidate your credit card balances: It's much easier and awarding to only have to track and focus your energy on a single debt then a lot of debt all over. Most of the times you can get great interest rates on the consolidated credit card balances as well.
- Credit Card Surfing: If you can't consolidate your credit card balances with a low interest loan from your bank then this the next best thing. However it does take some work on your part, simply apply for a new credit card with lower rates. Credit cards with NO INTEREST on credit card balances are perfect for this. Apply for a credit card with 0% interest on transferred credit card balances (usually good for 6-12 months), and when the deadline starts to approach apply for a new credit card with no interest on transferred balances. Banks don't monitor this so this will not affect your credit score, so just keep surfing until that balance is gone. On a $10,000 balance, you would save about $1,000 a year in interest just for doing about five minutes of work.
Making payments
The goal here is to pay off those high interest credit cards and other high interest rate debts first. Debt is usually caused by poor money management which usually turns into a snowball effect. Well we're going to show you how to use that same snowball effect against your own debt. First things first and that's to create your budget, once you've done that you need to see how much money is left over each month after all the bills are paid. After that you need to make a list of all your debts with the highest interest rate at top and the lowest at the bottom. Once this is done, make the minimum payment on all your debts minus the highest interest rate debt - regardless of how big the debt is.
Now lets say after your budget you've found you have $300 extra each month. The first thing we want you to do is put $100 into your SAVINGS account, this is to only be used in an emergency. Next take the remaining $200 and apply that to your highest interest rate debt. For example your minimum payment on your credit card is $50.00 - you're now paying $250.00 each month. Now this is where the snowball effect comes in - once your highest interest rate debt is paid off do the same to the next highest interest rate debt, but this time use that same $250.00 as well as the minimum payment for it. Your next highest interest debt may be a store card such as a Best Buy card or something of the sort, if your minimum payment for it is $25.00 you'd now be paying $275.00 a month until paid off. Continue this snow ball effect, applying the left over amount to the new debt. Using this snowball effect alone will not only pay off those debts quicker but allow you to be debt free and stay debt free!
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