Owing a pile of money on your credit cards can be depressing. You may feel like, no matter how much you pay, you won't get out from under them. In fact, if you stop swiping your plastic and get serious about ditching this high interest debt, you can conquer it more quickly than you ever imagined. Even if you don't have a bunch of extra money to devote to this debt, you can still defeat it and have a better financial future that's much less driven by debt. Here are four approaches to consider:
#1 Negotiate lower interest rates
Many credit card interest rates are high enough and can increase over time depending on the terms and conditions of your card agreement. What can be an enticingly low initial interest rate may get much higher six months or a year down the road. The good news is, you may be able to negotiate a better rate. If you have always been good at paying on time, it can be easier to get a modest rate reduction. Or, if you're struggling to make payments, the card issuer may be willing to reduce your rate to help you get back on track rather than have to write off the whole debt if you can't pay.
#2 Pay off the highest interest card first
This is a debt payoff method that can reduce your overall cost of interest. First, get out your credit card bills and see which has the highest interest rate so you know where to start your focus. If you are making low payments on all your cards, switch to minimum payments to bump up the amount you can pay on the highest payment card. Also, put any extra cash you may have toward paying down the principal. Once that card is paid off, move on to the next highest interest rate card.
#3 Pay off the lowest balance card first
This method won't necessarily lower your interest costs as effectively, but it can motivate you to get serious about tackling your credit card debt. With this method, you prioritize your credit card paydown project by focusing on the smallest balance first. This allows you to get a much faster payoff of that credit card. In turn, this can build your confidence and your enthusiasm for dealing with your debt.
#4 Consider a balance transfer
If you get a new low interest card offer or can apply and be approved for a low interest rate card, transferring higher interest balances to a lower interest card can save you big bucks and allow you to pay off your debt faster. Alternately, if you pay off your lowest interest rate card first and then transfer a higher rate balance to it, this can accomplish the same thing.
No matter what approach you take, you should know that paying just minimum payments on your cards will not help you get out of debt and helps no one but the card issuer, who will profit from this tactic. And it's important to know that if you carry credit card balances forward each month such that you are using more than 30% of your available balance, your credit rating will suffer even if you always make on-time payments.