1.Get Rid of Your Credit Cards.
We’ve covered this before, but it’s so important, we’re mentioning it again and putting it at the top of the list. If you’re a compulsive spender, cut up all of your credit cards except for the one with the highest remaining balance. This card is to be saved only for emergencies and kept by a trusted friend or family member who will solemnly swear that they’ll only hand it back in the event of an absolute emergency. Say one last goodbye to your credit cards. You’ll have to learn to live by cash from here.
2.Create a Budget and Stick to It!
Again, we have covered this before, and again we are mentioning it here as the second point on the list because it is such a critical task to do if you are going to cut your credit card debt. This is because only by creating a budget and sticking to it will you really be able to learn how to manage your expenses and take control of your finances.
3.Find Those Little Extra Savings.
The three dollars you can save a day by switching from a cafe latte to a regular coffee, for example, can mean over $800 in principal and interest reduction on a typical credit card balance over the course of a year. If you can figure out a way to save just ten extra dollars a day, we’re talking thousands and thousands of additional dollars in potential credit card debt reduction over the course of just a single year.
4.Pay More Than The Monthly Minimums.
This one may sound obvious, but you would be surprised by how many people rack up huge credit card balances and never pay more than just the monthly minimums because they have lost all hope and think it doesn’t make a difference anyway. Doing so is just the sort of thing the credit card companies hope for because it often means that it can take two decades or more to completely pay off a credit card balance. Just paying an extra twenty dollars a month can cut several years of this time period and save thousands of dollars in unnecessary interest over the long run.
5.Snowball your payments.
Focus on paying off the card balance with the highest interest rate first. When you’re done, take all of your savings (including your now non-existent minimum payment from the previous card balance), apply it to the next card balance with the highest interest rate, and so on. As your balances decrease, the money you have available to pay them down increases. Although you may only cut your credit card debt slowly at first, you’ll be amazed at how quickly the process starts to snowball after you pay off the first card balance or two.
6.Borrow Against Your Savings.
Although it is almost never a good idea to dip into your personal nest egg to cover an unsecured debt, this still may be a good strategy for people who have the discipline and the resources to do so. This is because it is much cheaper to pay yourself back at a reasonable interest rate than it is to pay your credit card company back at 20% or more. Again, do this with the utmost caution and make sure you set a loan payoff plan and stick to it. If you are a compulsive spender and have trouble sticking to your budget, this probably isn’t a strategy you should use.
7.Borrow From a Family Member.
Hey, if you don’t have money in your savings account to borrow against, maybe you have a rich uncle who does. If you can convince him that you’ll pay him a reasonable return on his money of say eight or ten percent (versus 20% to your credit card company), he may think you’re not such a bad place to invest his money. Again, this is family here, so you want to exercise extreme discipline and show him that you’re responsible by paying him back in a timely manner. Besides, you want to make sure that you remain in his good graces so he won’t cut you out of his will.
8.Refinance Your Home Loan.
We are not recommending that you pull equity out of your house to pay down your credit card balances unless you absolutely have to. Getting a cash-out debt consolidation loan isn’t so easy anymore. A more feasible solution would be to check with your bank or lender to see if you can refinance into a lower interest rate loan (rates are at a record low right now) and then use the savings to further snowball your payments to cut your credit card debt. However, if you do find that you can wrap your credit card debts into a home refinance loan, it’s not always such a bad decision if, and only if, the new mortgage rate is lower than your existing one. Another benefit is that the interest on your home loan payments is often tax deductible, while the interest on your credit card payments is often not. The rates on home loans are typically MUCH lower than credit card rates too. Again, it is very important that you exercise extreme caution and discipline if you go this route because you are mortgaging a real asset to pay off your unsecured credit card debts.
9.Consolidate Your Student Loans.
If you have student loans and haven’t looked into getting them consolidated yet, you should definitely call your lender to see if you can. Doing so can reduce your payments substantially, and your credit history is usually not a factor whatsoever in your eligibility for consolidation.
If you’re really having problems, you can also ask your lender if there is a way to defer your payments without negatively impacting your credit report. Keep in mind though that once you defer your student loan(s), you’ll most likely start generating compounded interest until the time you start making your payments again. So carefully weigh both your costs and savings before you choose this option.
10.Supplement Your Income.
Maybe you can get a few extra hours of overtime at work. Or, better yet, perhaps you’ve always dreamed of being a part-time teacher or tutor. Or maybe you like to read books and wouldn’t mind working a second job as a part-time clerk at a bookstore. Whatever your skill or interest may be, there’s a pretty good chance you can figure out a way to make some extra money in your spare time.
11.Have A Garage Sale.
Don’t laugh. You may be very pleasantly surprised at what somebody would be willing to pay you for that old lawnmower that has been sitting in your garage for a while or that stack of DVD’s you’ve already watched one too many times. Nearly everything, even stuff you probably consider junk, has some value to someone. If you don’t want to have a garage sale, try selling it on Craigslist, or even EBay, if it is small enough to be packaged and shipped. Just remember to be safety conscious and always meet strangers at a public location rather than inviting them into your home.
12.Transfer Your Balances.
One way to lower your credit card interest rates is to transfer your balances between cards or to take advantage of promotional offers many banks use to try to entice you sign you up for new credit cards. You’ve seen the come-ons: “Transfer your balance to our new card and you’ll only pay 5.99% for the first year”. It could be worth it if you’re currently paying 20%.
Just remember to always read the fine print and to examine every offer very closely. Some banks will charge an additional 3% transfer fee or jack your interest rate to 26% at the end of the initial teaser period. Some banks are also wary of charge card hoppers and have stipulations written in the fine print that if you transfer balances from the new card within a twelve-month period, the normal interest rate will be applied to all outstanding balances retroactively. Always, always, read the fine print.
A better option yet may be to check with your bank or credit union to see if you’re eligible for a personal loan. While you may not get a 5.99% one year teaser rate from your bank, paying a fixed rate of 10% or so is a lot better than getting caught by stipulations in the fine print, and it is certainly much better than paying 18-26% on your existing credit card balances.
13.Renegotiate The Terms With Your Creditors.
Many credit card companies will be willing to work with you if you know how to negotiate for better terms. How you go about this though depends a great deal on your personal financial situation.
If you’re maxed out on your balances or have recently been behind on your payments, you’ll want to negotiate from a position of weakness. To do this, call your credit card company and let them know that the high interest rates they are charging you are making it nearly impossible for you to keep up with your minimum monthly payments. If you have been laid off from work, had your hours cutback, or some other financial hardship, let them know this as well. You might also want to hint (never threaten) that if you don’t get some reprieve, you may have to file bankruptcy even though you are doing everything in your power to avoid it. Very often banks will work with people in these types of situations because they know that it is better business to reduce (or even temporarily suspend) a customer’s interest rate, than it is to let that customer go into default whereby the bank risks possibly losing everything.
If instead you have been on top of your payments and have excellent credit, you might want to try to negotiate from a position of strength. To do this, you’re going to convince your credit card company that they need to lower your rate because they need earn your business. How? Simply call them up and let them know that you’ve received better offers from one or more of their competitors. Politely tell them that you think they are a great company and that you would like to continue to be there customer, so you are giving them the opportunity to beat or match the competing offer in question. Of course it’s always helpful to have an actual competitor’s offer in hand just in case they ask you for it. So keep that in mind too.
If you are somewhere in the middle of these two extremes, it also can’t hurt to simply call your creditor and politely ask them to reduce your rate. Don’t be surprised if they do, especially if you’ve been a long and loyal customer.
Finally, no matter which one of these three strategies you ultimately choose, always keep a few things in mind. First, if the immediate answer you receive is “no”, always ask to speak to a supervisor. Very often supervisors have the authority to make these types of decisions while customer service representatives do not. Second, always, always, be polite and never threaten. Would you want to give any special favors to a customer who was being rude to you, especially over the phone? And third, always keep in mind that as long as you are polite and don’t make any stupid threats, the very worst thing that can happen to you is that the final answer will be “no”. You’ll be no worse off than before you made the call. Or, in other words, you have everything to gain, and nothing to lose.
14.If All Else Fails, Let the Pros Handle It.
For many people this is the best and easiest solution. If you are really in a lot of trouble, and still can’t make ends meet even with all of the strategies discussed here, a good solution may be to contact a qualified debt consolidation company who can negotiate directly with your creditors on your behalf. Often they will get your interest charges waived completely and can even get your creditors to cut your credit card debt by 50% or more. They can also negotiate a single affordable payment plan that usually can be paid off entirely in 18 months to three years. Most such companies provide free consultations without obligation, so there’s no harm in at least talking to them to see what they can do.
Lastly, while some people may feel too proud or embarrassed to go this route, keep in mind that it happens all of the time, to all types of people. In the long run though, it can mean preserving good credit, financial freedom, and peace of mind.