15 Smart tips for paying off credit card debt

By Good Nelly

Ask Nelly

If you're getting behind on your credit card bills, it's time you take steps to manage your debt and avoid high balances and interest charges which can limit your financial options. Given below are 15 tips which can help you pay off credit card bills without leading you to debt problems.

1. List your debts: Prepare a list of your credit card accounts along with the account number, interest rate, outstanding balance, payment due date, credit limit and the minimum payment. This will give you a clear idea about how much you owe on your accounts and help you manage your bills responsibly.
2. Pay more than the minimum: Try paying more than the minimum payment each month. The minimum payment includes mostly the interest on your account. So, if you pay only the minimum amount, the credit card company makes more interest while you lose the cash in your pocket. Moreover, it'll take you longer to get out of debt. But paying more than the minimum reduces your balance and helps you pay off credit cards fast.
3. Negotiate a low interest rate: If you're in financial problems or your bills are getting out of control, call the credit card company and tell them about your situation. If required, negotiate a low interest rate at which you'll find it easier to make your credit card payments.
   
   Alternatively, you can request a different payment plan that's more affordable for you. As your situation improves, you can inform your creditors and have your payments raised so as to pay off your bills faster.
4. Plan your budget: Prepare a budget including a list of your monthly income, expenses and bill payments. The budget will help you track exactly where your money goes. You can even cut down unnecessary expenses. Use the budget worksheet in order to maintain a record of your income and expenses.
5. Do not acquire new debt: Do not apply for new credit cards or loans till you pay your way out of debt and bring your finances back in order. It's difficult to pay down credit card debts when you keep accumulating new balance every month. Avoid using your cards when you're making a purchase. Instead, use plain cash, check or debit cards to pay for a purchase.
6. Make on-time payments: Try to make payments within the due date. You may use check or set up automatic payment plans to avoid making a late payment. Thus, you can eliminate chances of a late fee being charged on your accounts.
7. Build up an emergency fund: Try to save a certain part of your monthly income in an emergency fund. It will relieve you from the stress of dealing with emergencies. Make arrangements for automatic deposit into your emergency fund. Start off by saving $1000 and build up an emergency fund worth 3-6 months of expenses to help you plan for emergencies such as job loss, sickness, home improvements or car repairs.
8. Balance transfer: You may transfer the balances on high interest cards to a card having a low rate and thus consolidate multiple credit cards into a single payment. In case you don't have a low interest card, you may look out for one. If possible, you may even get a card at 0% introductory rate. However, you need to check the duration for which the introductory rate would remain at 0%. If it's quite long, then you'll have enough time to pay off your credit card bills at 0% rate of interest. That'll save you good amount of dollars.
   
   Now, when you request a balance transfer, ask your creditor if they charge a fee for the transfer. Request him to waive the fee as a one-time courtesy.
9. Pay off high interest cards first: This is a credit card debt reduction strategy that helps you to get rid of high interest bills first. You start off with paying more than the minimum on your credit card having the highest rate, while making minimum payments on all other cards. For instance, if you're paying $200 on the high interest card, try to stick to that amount every month even though your balance and minimum payment gets lower day by day. Once you pay off the entire balance on the high interest card, start paying more than the minimum on the next high interest card and so on.
10. Pay off the lowest balance first: If you're not comfortable with paying down the high interest debts first, try paying off cards with low balances. Start with the card having the lowest balance and make extra payments (paying more than the minimum) towards it every month. Continue to pay the minimum on other cards. As soon you pay off the lowest balance, move on to the card with the next higher balance and repeat the same process. This method makes you feel good as you get rid of a credit card bill faster, no matter how low the balance may be.
11. Use savings and investment: You can cash out your savings and investment returns in order to pay off credit card bills, provided the after-tax return on investment is lower than the after-tax interest rate expense on your debt.
12. Change your lifestyle: If your financial situation is tight and you're thinking of using credit cards to carry out your daily expenses (such as gas, utility bills and groceries), change your lifestyle. Try for a part-time job, commute by public transport or relocate to a less expensive home, before you have to use up credit cards for your daily expenses. You may also sell off old items online and earn some extra cash to repay credit card bills.
13. Settle your debts on your own: When you cannot make monthly payments on your credit card bills, contact your creditors and settle the debt on your own. Know how to settle your debts yourself so as to get rid of credit card bills faster.
14. Take professional help: You may go for professional help and guidance in paying off credit cards. Contact a debt relief company and get enrolled in credit card debt consolidation or debt settlement depending upon how much you can afford to pay.
15. Borrow against your insurance: If you have life insurance, consider taking out a loan against the policy. The interest rate on such a loan is well below the commercial rates. So, you won't have a problem in repayment. In case you pass away before the loan is paid off, the outstanding balance plus interest is deducted from the face value of the insurance policy and the rest is then paid to the beneficiary.

When you pay off your credit cards and the balance reaches zero, contact your creditor and try to close the accounts one-by-one. However, if you've thought of buying a home shortly, avoid closing the accounts because it'll reduce the length of your credit history and bring down your credit score. This in turn will affect your chances of qualifying for a mortgage with suitable terms and conditions. So, depending upon your financial goals, you may not close your credit cards right after you've paid off the balances. Just stay away from the cards and make sure you don't use them till you're in better control of your money.

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