4 Best Ways to Eliminate Your Credit Card Balances
The following 4 debt relief options are geared for anyone with high credit card debt, who can comfortably afford to pay at least minimum monthly payments. If you have a financial hardship, view these 6 debt relief options.
1. Debt Snowball Method:The debt snowball method of paying off debt *proves to be most effective, according to new research published by the Harvard Business Review.*
A useful first step in advance of using this approach is to create a budget analysis worksheet. This will provide a visual image of where your money is going, making it easier to find non-essential expenses that can be reduced or eliminated. (example: lower the electric and heat bill, use coupons when shopping to save money at the grocery store, remove the HBO that you never watch, and cancel that old subscription that you forgot was billing you each month).
Debt Snowball Method - Quickest Way to Pay off Credit Card Debt
With the debt snowball method, you aggressively work towards paying off the credit card with the smallest balance first. Immediately after that initial credit card balance gets paid in full, you*ll start to pick up momentum, and your available cash flow will increase. Use the extra money towards paying off the second smallest debt. Imagine rolling a snowball, and seeing it double in size as it picks up additional snow and continues to grow.
As your debts are paid off one by one, your available cash flow will increase. You*ll continue to have more available to use when attacking the next credit card balance.
This method works by using psychological principles. When a person achieves a goal, like paying off that first credit card debt * the brain releases dopamine, and it feels good. Another benefit of the debt snowball method is that your credit utilization ratio and credit score simultaneously improve each time a credit card balance gets paid in full.
2. The Debt AvalancheThe debt avalanche method is similar to the debt snowball method, but the difference with the debt avalanche is that you order your debts by their interest rate. Instead of paying off your smallest balance first, you would pay off the credit card balance with the highest interest rate first, the one costing you the most.
By paying off your most expensive accounts first, you can get out of debt faster and maximize your savings.
You may decide to use a combination of the debt snowball and avalanche method. For example, start by paying off all the accounts that have a balance of $1,000 or less, using the debt snowball method. After quickly clearing these first few small debts, then switch to prioritizing your debts by the interest rate and using the debt avalanche method.
3. Balance Transfer Cards:*Low Rate Balance Transfers | 0% Intro APR. Apply Now!*
Wow, that*s enticing. * until you read the fine print; *after 12-18 months the introductory rate comes to an end, and the interest rate rises to 19.9%*. Balance transfer cards also come with up-front fees. These fees range from 3%-5% of the amount of credit card debt getting transferred. If you move $10,000 onto a balance transfer card that charges a 4% fee, that*s $400 in up-front costs.
When is a balance transfer card worth it?
If you can afford to pay the balance *in full* within the 12-18-month introductory period, you could end up paying low to no interest and only a $400 fee. Shop around for a balance transfer card that comes with low costs and only go this route if you can afford to pay the balance in full within the introductory rate period.
At WiseBread.com, you can find balance transfer cards that come with a 0% introductory APR on balance transfers for up to 18-months.
Keep your credit card accounts open after paying off the balances. If you close a credit card account, your credit score will decline because your credit utilization ratio will be negatively affected and the length of your credit history will be reduced.
4. Home Equity Line of Credit:When using a home equity line of credit to pay off credit card debt you*re taking on considerable risk. You*re swapping an unsecured debt for a secured debt. If for whatever reason you can*t afford to continue paying your scheduled monthly payments on the home equity line of credit, you could end up losing your home over a credit card debt, wherein you see the risk.
However, this is still one of my favorite tools for clearing credit card debt. The value of using a home equity line of credit to pay off credit card debt is that you*re eliminating high-interest credit cards, and replacing them with a low-cost home equity line of credit.
According to Bankrate.com, 5.56% is the average interest rate on a home equity line of credit as of May 2018, significantly lower than the average interest rate on a credit card.
For additional options on how to get out of credit card debt, if you have a financial hardship, view this post here: https://goldenfs.org/best-ways-to-clear-high-credit-card-debt/