Save hundreds in interest on your credit card debt with this 1 simple strategy and pay it off FASTER.
At some point, almost everyone will owe money on their credit cards. And while you have every intention of paying it off as quickly as possible, time goes by and it just keeps growing. Or you feel like you’re barely chipping away at it.
This is nothing to be ashamed or embarrassed about.
We all go through tough times, spend needlessly, lent money to someone and got behind in our bills. However, what’s done is done and there’s no point dwelling on the past. There is absolutely no room in life for shame or guilt! Oops, a little bossy boots just showed up – LOL. Instead, I want you to focus on how to pay it off as soon as possible.
Most credit cards offer you some kind of bonus for using it. For example, you may earn reward points, air miles or even cash back. And for a new credit card where you do a balance transfer, you may get it interest free or a very low interest rate for 6 months. Retail stores will give you an extra discount or special bonus on your first use.
What they don’t tell you is what the annual interest rate is. Yes, it’s in the fine print and on your statements, or maybe you knew what it was but didn’t realize just how much interest can be charged each month on your credit card debt. Either way, there is a better option they DO NOT tell you even if you struggle with payments.
How much interest are YOU paying?
For most cards, the interest rate varies anywhere from 17.99% up to 29.99%. That means that if you owe $1000 with an interest rate of 23.99% (in this example I just used the middle of 17.99 and 29.99) it will cost you $19.99 in interest every month and $239.90 for the year. And the more you owe, the higher this cost becomes and the harder it is to pay off. Remember, this amount is ONLY the interest portion of your credit card debt. It does NOT include paying down your principal (what you borrowed).
Credit card debt assessment
The absolute first thing you need to do is collect your most recent credit card statements. By credit card, I don’t just mean American Express, Visa and Mastercard. You should also be collecting any gas, grocery store, Amazon, costco and any other retail store cards you owe money to.
Next, I want you to make a list noting down the following items.k. The card company, how much you currently owe, what the minimum payment is, when the payment is due and the ANNUAL interest rate. Do not use the periodic or daily rate.
Let’s say Sally’s list looks like this:
| Card Name | Balance | Min Pay | Due Date | Interest Rate |
|---|---|---|---|---|
| Capitol One | $1000.18 | $14.00 | 7th | 19.8% |
| Macy’s | $1752.09 | $56.94 | 18th | 27.49% |
| Walmart | $867.72 | $26.03 | 21st | 19.89% |
| Nordstrom | $1489.43 | $59.58 | 12th | 24.4% |
| Total | $5109.42 | $156.55 |
Now, let’s say Sally completely stops using all her credit cards and only makes the minimum payment each month.
It would take over 30 years to pay the borrowed $5109.42.
Unfortunately, it would also cost her $22,782.61 in interest.
What are your options?
As you can see, in order to pay off her credit card debt, Sally needs to make some changes ASAP. She needs a strategy to help her. The 2 things that she can do to help pay it off faster is:
- Lower how much interest is charged (which I go over in this post)
- Increase her monthly payments (a topic for another time)
Balance Transfer
The first option is to do what’s called a “balance transfer”. This means moving what you owe on one credit card (at a higher interest rate) to a different one (with a lower interest rate). There are a couple options for this.
- Get a new credit card with 0% intro rate (credit check required)
- Move balance from high rate card to lower rate card
0% Introductory Rate
Credit card companies make A LOT of money from people that keep a credit card balance. In order to entice you to get and use their card, they will often advertise a 0% introductory rate for “balance transfers”.
What you need to know is what they charge as a “balance transfer” fee. This fee can vary anywhere from $25 to $50 as a one time cost and usually makes sense based on how much you are saving in interest.
Another thing you need to be aware of is how long you get this “introductory rate” and what the interest rate is AFTER the introductory period. Trust me when I say, it DOES NOT last forever at 0%!
The last thing you want is to do a balance transfer to a new card that will cost more in interest a year from now.
High to low rate
The other option is that you “transfer the balance” from an existing high interest credit card and move it to one that has lower rate. You do NOT need to do a credit check for this but do need to have available credit on the lower rate card.
In Sally’s situation, she could potentially move the balance of $1752.09 on her Macy’s card at 27.49% to her Capital One at 19.8%. In this situation it would save her approximately $135 a year in interest.
Low rate card
Most financial institutions, banks and credit unions, have what’s called a “low rate interest” credit card. The interest rate on these range anywhere from 8.99% to 13.99%.
All you have to do is call and say you want to change to their “low interest” credit card. You DO NOT need a credit check for this!
That is a HUGE difference on your annual interest rate. In comparison you would only pay $89.90 a year at 8.99% compared to $239.90 a year for a balance of $1000 at $23.99%.
A $150 savings just for switching to a “low rate” card.
Another more drastic example is if you have a $5000 balance paying 29.99% interest. The interest on this is $1499.50 a year. Compare this to a “low rate” card at 13.99% (the higher range of “low rate” interest) you will only pay $58.29 a month and $699.50 a year.
That’s an $800 difference per year!!!
So what’s the downside?
The downside to this is that you may lose your accumulated rewards, have to pay an annual fee and/or will no longer collect rewards on any new purchases.
Of course, if you carry a balance, have a high interest rate and want to pay down your balance, even if there’s an annual fee of $50, you are still saving a ton of money.
What to do
As you can see, there are quite a few options to consider. Your personal financial situation would need to be considered before making any final decisions.
However, as a general rule, I would first call each company to see what “low rate” option they can set you up with right away. Then, I would look at doing a balance transfer from a high rate card to a lower rate card as long as you haven’t maxed out your credit on the low rate card.
Generally speaking, I do not recommend moving to a 0% introductory rate. The reason is because it’s a temporary fix. So, unless you know for a fact that you can pay it off within the 0% introductory period, it doesn’t make sense to do a credit check for a new card.
Next, you need a strategy to pay it all your credit card debt off!
You may also be interested in these posts:
~ How To Manage Money During A Financial Crisis
~ #1 Strategy to pay off your debt FAST & FREE Debt Payoff Tracker
As always, I am here to help if you have any questions and very much appreciate your support when you share this post!
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