Credit cards have become indispensible nowadays. You need these cards in almost every sphere of life. However, too many credit cards with excessively high interest rates can be a bit problematic at various situations. Read along to know about how you can pay off credit card bills in different scenarios.
Scenario 1: When you have money
If you earn decent amount of money and have sufficient funds in your savings accounts, then you can repay your multiple credit card bills easily. All you need to do is compute the total outstanding balance correctly. Thereafter, you can contact your creditors and make the required payments to them. Check your credit report after paying the bills in full. Find out if the status of the credit accounts has been updated accurately.
Scenario 2: When you are short of cash
Glance through the following lines to know how you can pay off credit cards on your own/ through professional help when there is shortage of funds.
(a) Want to pay off credit cards on your own
It is not a myth. You can dig out of credit card debts on your own. You just need to be focused and stay dedicated. Check out the following steps which you need to follow to eliminate credit card bills on your own:
Get acquainted with your debts:Do you honestly know how much credit card debt you have actually accrued? If a financial counselor asks you how serious is your debt problem, then will you be able to give the correct answer? If not, then it is time to get acquainted with your debt enemies now. You do need to know about the weight of the debt boulder you are carrying on your shoulder. Create a list of your credit cards along with other details in your smartphone or a piece of paper. Calculate the amount you'll have to pay back your creditors.
Craft a budget and look at it:A well-planned budget can help you in paying off debt. Prepare a budget and allocate your funds for meeting necessary and other expenses. Allocate your funds into 3 main areas - spending, saving and investments. Designate more money towards saving and less dollars towards spending. Use the saved to pay off debt. In the modern era, it has become quite easy to prepare a budget. You can use the DebtCC personal budgeting application to prepare your budget easily.
Cash out life insurance:If you or your spouse has a life insurance policy with cash value, then feel free to borrow money against it. The interest rate is usually lower than the normal loans. You'll also get time to pay back the loan. This option is favorable when you don't have free money to pay off debt. Make sure you repay the loan before the fag end of your life. Otherwise, the insurer will deduct the amount with interest from the face value of the insurance policy.
Make payments strategically:Usually, you pay your bill once a month. However, you can pay the same bill every 2 weeks too. You can make 50% payment every 2 weeks. You can adopt this strategy especially when you're paid bi-weekly. This may lead to frequent payments in a year as several months consist of more than 4 weeks. The more payments you make in a year, the greater your chances of getting out of credit card debt cycle.
Borrow from retirement funds:If you've accumulated enough funds in your 401(k) account, then you can take out a loan against your retirement savings account. The interest rate is typically lower than that of the credit cards. The biggest advantage of this option is that you're paying back to yourself only. You're not financially obligated to a lender.
Focus more on saving than spending:Saving should be your mantra in life. Embrace frugal lifestyle and start living within your means. Take steps to cut down cost in your house, insurance, mortgage, car, college, food, clothing, etc. Nobody will give you free money to pay off debt. You'll have to arrange money to pay debt off.
Lower your interest rates:If you're thinking that "I can't pay off my credit card debt", then it is time to pick up your phone and contact the creditor. Explain the incidents that have caused the financial hardship. Request the creditor to lower the interest rate on the cards and revise the payment structure.
Get financial help from friends:Real friends are there for you even in the time of financial emergencies. So, you can ask them to give you a 0% interest rate loan to pay off credit cards. You can even get advice on how to pay off credit card debt fast from them.
Use home equity loan:If you've been successful in accumulating equity in your home through proper maintenance of mortgage, then it is a good time to take out a home equity loan. You can utilize the loan proceeds to pay back your creditors.
Liquidate your savings account:No one likes to use the funds in the savings account to pay debt off. However, if the interest rate on the savings account is very low, then there is no point in keeping the funds there. You can use the money to pay off debt.
Revise the payment terms:If you've no friends or retirement funds, then you'll have to seek help from the creditors only. Request the creditors to revise the payment terms and conditions. Inform them that you'll have to file bankruptcy if a repayment plan is not organized.
Request the creditor to schedule a lower payment plan. Have patience and talk in a convincing way. If the creditors are convinced that you really can't make payments, then they may agree to create a suitable payment plan for you.
Scenario 3: When you want to get rid of highest interest card first
Debt avalanche method is a suitable option for you when you want to save more money in the long run. In this method, you focus primarily on the interest rate on the credit cards. Here, your task will be to locate and pay off the credit card with highest interest rate, and then move on to the other cards.
- Rank the credit cards from highest interest rates to lowest interest rates
- Make minimum monthly payments on all your credit cards
- Use your saved money to pay extra dollars on highest interest card
- Continue the process till the highest interest card is paid off
- Analyze your financial situation at various times
- Apply the same process on the next highest interest card after the top card is repaid
- Repeat the same process with other cards till you are debt free.
You can save a substantial amount when you keep on eliminating the highest interest credit cards one by one. It is to be noted that these cards financially cost you more in the long run because of the compounding interest rates. The longer you take to pay off the highest interest cards, the worse for your wallet. The outstanding balance will keep on increasing every month. By paying off the highest interest cards one by one, you are potentially saving interests and money.
Scenario 4: When you want to pay at your own comfort
If you want to pay off your credit cards at your own comfort and stay motivated as well, then a wise financial decision will be to opt for debt snowball method. This method popularized by a renowned financial expert helps you repay your credit cards from lowest to highest balance. Some people feel that it is the best way to pay off credit card debt.
Here are the 5 ways to pay off debt through the snowball method:
This method is regarded as a smart way to pay off credit card debt. This is mainly because when you pay off the credit card with lowest balance, you get some success. You get a feeling that you are on the right track. You progress slowly but steadily towards your debt goal. This motivates you and strengthens your financial resolution to get out of debt
You can go through the following page to know about the other credit card debt reduction strategies in details.