Do you have high-interest credit card debts? If you do, then you need to pay it off with a sense of urgency. That interest rate on your debts, or to be specific the finance charges, will cost you a lot of money if you do not pay it off as soon as possible.
You see, when the balance is carried over to the next billing cycle, there is a finance charge that is added to it. This charge is calculated based on the balance amount and the interest rate. That means if you have a high-interest rate, it will result in a higher finance charge. It will make your debts grow significantly bigger over a short amount of time. And when that happens, the more money will be wasted on your credit accounts.
According to reports, credit card owners paid approximately $113 billion worth of interest rates in 2018. This is just for credit cards alone. In 2019, it is expected that this amount will go as high as $122 billion – even if there is no interest rate hike.
Imagine all the money that is being wasted on the interest rate alone. Instead of using that money to invest in your future, you have to send it to your creditors. The money that you worked so hard to earn will just be used to make your creditors rich.
How unfortunate is that?
This is the reason why you need to deal with the high-interest credit card debts. You do not have to close the credit card accounts. You just have to do something about the high-interest rates.
Tips to pay off high-interest credit card debts easily
Let us start with the debts itself. It will be hard to really improve your personal finances if you do not get rid of your debts.
If you have a lot of high-interest credit card debts, here are strategies that you can use to effectively pay it all off.
Negotiate for a lower interest rate
The first thing you should attempt to do is to negotiate with your creditors. You have to know that you have every right to ask for a lower interest rate. In fact, if your creditor tells you that they plan on increasing your interest rate, you also have the right to say you cannot accept it. Of course, you have three options. The first is you will retain your current interest rate. The second is you will negotiate for a lower rate. The third is being forced to accept the new rate. All of this will depend on how your negotiations will go. The bottom line is that you should not be afraid to discuss your interest rate with them. If you explain that the high-interest credit card debts will be easier to pay off if you have a lower rate, you might be surprised that they might relent.
Use debt consolidation loan
Another strategy to deal with your high-interest cards is using a low-interest debt consolidation loan. This is perfect for those who have a lot of credit card debts. You can simplify your repayment plan by combining multiple debts. You will borrow a loan that is enough to pay off the total balance that you owe on all your credit card accounts. Once done, you are left with one low-interest debt. This will make it easier for you to pay your debts each month. The single payment will make payments more simple and will not give you too much stress. You do not have to focus too much attention on monitoring multiple debts. That means you can focus on other things – like growing your income. Not only that, but the lower interest will allow you to save money on the overall debt.
Use balance transfer card
The final strategy you can use to deal with high-interest credit card debts is through a balance transfer card. Some people choose a balance transfer over debt consolidation loans because they like to eliminate the interest rate completely. When you qualify to get a balance transfer card, you get a 0% interest rate during the introductory period. This is usually offered for a year or more. If you can get more, that would increase the chances of paying off the debt within the promo period. While the 0% interest is very attractive, make sure you can afford to make bigger payments each month. This will help you pay your debts within the promo period. This will really save a lot of money – probably more than what you will get from debt consolidation loans.
How to avoid paying high-interest credit card debts
While you are paying off your high-interest credit card debts, you need to figure out how you can avoid it in the first place. There is a reason why you accumulated so much debt. It usually does not happen overnight and even if it does, it is avoidable. But you need to prepare for it so you will not be forced into a position wherein you have to suffer the effects of a high-interest credit card.
Here are tips to help you to accomplish this.
Pay your balance in full
Did you know that 1 in 10 Millennials have admitted to having credit card debt for more than 5 years? Imagine how much interest amount they have paid over the years! If you want to stay away from high-interest debts, you need to start paying your credit card balance in full each month. Remember that you can only be affected by the high-interest through the finance charges. That charge will only be added to your balance if you allow it to carry over to the next billing cycle. If you remove that balance by the end of the month, no amount will be carried over. That means there will be no finance charge. This is the best way to keep using your cards and not be scared of the high-interest rates.
Refuse a higher rate
We mentioned how the creditor can choose to increase your interest rate. But if you do not want to accept, you have the right to refuse. You have to be prepared to negotiate this. If you had been paying your dues on time, you might be able to win the negotiations. Sometimes, if you get an offer from another credit card company with a lower interest rate, you can use this to negotiate with your current creditor.
Have an emergency fund
Finally, you should really give your emergency fund a boost. This is the best way to avoid being in debt. There are times when even the most responsible spenders land in debt because they were not prepared for an unexpected expense. A trip to the ER can justify the use of high-interest credit cards. But if you have an emergency fund in the first place, you do not have to worry about this. You can use this fund to get out of a tough situation. Not only will this help you stay away from debt, but it can also lower the stress that you should have been going through.