How to pay off credit card debts faster?
The new year is a good time to focus on paying down credit card debts.
Credit card debts accrued particularly during the holidays. The pandemic put a halt to vacations and dining out. Americans who didn’t lose their jobs have more cash to pay down card debt. But not everyone has been so lucky.
About 42 percent of Americans said their financial situation had worsened since the start of the pandemic because of job losses or drops in income, according to a survey by the financial website NerdWallet.
Some Americans are in “survival” mode, using their credit cards to cover lost income and making minimum monthly payments. This means accruing interest debts and prolonging the payoff date.
An example from the FTC website illustrates the interest calculation over 10 years for carrying credit card balance.
Suppose when you’re 18, you charge $1,500 worth of clothes. food and other essential items on a credit card with a 19 percent interest rate.
If you repay only the minimum amount each month, and your minimum is 4 percent of the outstanding balance (the lowest amount permitted by some issuers), you’ll start with a $60 payment. You’ll be more than 26 years old by the time you pay off the debt. That’s 106 payments, and you will have paid more than $889 extra in interest. And that’s if you charge nothing else on the card, and no other fees are imposed (for example, late charges).
If your minimum payment is based on 2.5 percent of the outstanding balance, you’ll start with a $37.50 payment. You’ll be over 35 years old when you pay off the debt. That’s 208 payments, and you will have paid more than $2,138 in interest, even if you charge nothing else on the account and have no other fees.
Moreover, credit card balances not only affect your spending ability, but it also has a direct impact on your credit score and a direct impact on your ability to borrow money or pay a low insurance rate. The amount of debt you have is one of the biggest factors that go into your credit score; your level of debt is 30% of your credit score. That means you are more likely to pay off your credit card debts before getting approved for your first mortgage.
So, how do you stay motivated to pay it off?
Start by paying off the one with the smallest balance, which can give you a sense of accomplishment and encourage you to keep going.
Request a lower interest rate
Banks from time to time offered to reduce interest rates temporarily, usually for customers with good credit. During the pandemic, some banks have offered to lower monthly payments or waive interest charges for people who are having financial difficulties. It’s worth a try to request interest reduction.
Consolidate your credit card debt
You can also consider consolidating credit card debt, perhaps with a lower-rate personal loan, to make payments more manageable. Having just one bill to pay is easier to manage debts. Watch out for transfer fees and the repayment terms when you transfer your balances.
Plan ahead
Every little bit helps. Put your tax refund, stimulus check, a bonus at work or an inheritance toward your goal. When the bill comes, you have to pay what you owe. Avoid impulse buying as much as you can to minimize unnecessary expenses.
Use money pool app
Create saving circle with friends and save together. Group saving increases your chance of success. It’s like having a support group for your financial needs.
You can choose to find the financial flexibility you need with Joola. Join a group and select an early payout. Pay only 5-8% one-time fee when you join a group. Use the payout to pay off high-interest credit cards. All fees are shown before you join a group so you can expect how much you’ll receive and the amount you have to pay.