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Get rid of credit-card debt
21 Jan, 2008
The worst thing you can do financially is carry credit card debt, especially debt that is costing you 18 to 28 per cent.
In today's world, almost everyone uses credit, but most people get little to no training on budgeting, saving money or using credit wisely. Hear are some strategies to get out of credit card debt:
Pay more than the minimum.
Most credit cards require a minimum payment of three per cent of the outstanding balance. But paying the minimum only prolongs the agony. Quite frankly, that's exactly what the banks want you to do. If you carry a $1,000 balance on your credit card at 28.8 per cent interest, your minimum payment is $30 per month. At that rate, it would take you 68 months (more than five years) to pay off that $1,000 balance and you would pay about $1,040 of interest on a $1,000 debt.
That's crazy. If you double up the minimum payment to $60 per month, you will have the debt paid off in only 22 months and your total interest would be less than $300. That's more than $700 of interest saved on a $1,000 credit-card debt.
Pay down your credit card debt as much as possible or, best yet, pay it off every month.
Consolidate at a lower interest.
According to Tricia French, a financial counsellor for SISIP Financial Services, "There are really only two ways to get out of debt - pay it down as fast as you can and find credit at the lowest interest rate."
One of the ways to get a lower interest rate is to consolidate your loan into one lower rate. The best option rate if you have good credit is a line of credit.
Let's say you have $10,000 of credit card debt from various credit cards and, on average, you are paying 15 per cent in interest. Your minimum monthly payment on that debt would total $300 per month. Of that $300 in payment, $125 would go to interest and $175 would go to principal. If you consolidated that debt into a line of credit at eight per cent and continued to pay the same $300 per month in payments, the interest portion would only be $67 per month, which means $233 would go towards principal.
Pay the highest interest first.
For some people, debt has become so overwhelming that consolidation is not an option. In that case, it's time to get really serious and start attacking the highest-interest debt first. The math on this strategy is really simple - higher interest rates means more money in the bank's pocket. Pay high-interest debt first.
Once a card is paid off, don't run it up again.
A credit card with a zero balance can often be a temptation to spend. To avoid the urge, stash it away, lower your credit limit or, better yet, cut up the card.
Get low-interest credit cards.
If you carry a balance on your card of more than $1,000, ask your lender about switching to their low-rate card. You will save interest and speed your repayment. If you plan to pay your balance in full each month once you've got your card paid off, you can switch back to the standard card and save the annual fee.
Cash out the savings accounts.
Often people keep money in savings accounts or money markets earning as high as four per cent. If you have debt even as low as six per cent, you are much better off using money that is just earning four per cent to pay off the higher-cost debt.
News Source:
http://www.thetelegram.com/ |
