There are many ways to go about and deal away with credit card debt by Christmas. From debt consolidation and balance transfers to cutting non-essential spending, it is possible to reduce debt and eliminate sky-high balances.
Step 1 – Add up All Debts
The first step to reduce your credit card debt is to find out how much you owe. What you can do is add up all your debts, including card balances, mortgages, vacation loans, vehicle, home equity, and personal loans, lines of credit, and so on. Add up all balances to find out the total debt amount. Then make a list of your sources of income, including wages, salary, child support, alimony, real estate investments, and others. This is a good way to figure out how much you make and how much you owe. If you make less than you owe, you are in serious trouble and it’s time to rethink your finances now that the Christmas season is behind the corner.
Step 2 – Balance Transfers: Get a Zero Interest Credit Card
Transferring balances is a good option for high interest cards and allows borrowers to take advantage of a zero or very low rate over a promo period of 6 – 12 months. In this way, you will be paying more toward the outstanding balance and less toward interest charges. An additional benefit is that borrowers are free to choose from different cards with attractive terms and add-ons. Examples include events and concert tickets, deals and discounts, complimentary bonuses, points, and more. On the downside, there is always a risk to end up paying a higher interest rate if you don’t meet the eligibility criteria. It is also a good idea to inquire about the balance transfer fee because it can cost more than interest on your current account.
A balance transfer can be a good option to save on bank fees and interest rates, but make sure you check all details with your financial institution. There are plenty of credit cards with low interest rates of 10 – 12 percent and low or no annual fees. Ask about penalty charges, the grace period, cash advance fees, foreign transaction and balance transfer fees, late and over the limit fees, etc. Some cards also go with replacement, credit limit increase, and processing or application fees. These are less common but it is always good to be on the safe side. Some financial institutions also charge returned check fees, expedited payment fees, and monthly fees.
Step 3 – Consolidate Your Debt
Debt consolidation is a good choice for people who pay multiple card balances. If you have two or more cards with high interest rates, then consolidation is a solution to look into. Apart from balance transfers, there are other options to consolidate your debt, including a line of credit, home equity loan, and unsecured personal loan. The choice of financial solution depends on factors such as available cash, credit rating, types of debt, total debt amount, and others.
Step 4 – Join a Credit Union
Try to join a credit union if you are not a member already. Credit unions usually offer cards and loans with lower rates and competitive terms. Unions are non-for-profit entities that cater to their members and pass through profits in the form of benefits such as low interest rates, low annual rates, etc. Many unions offer credit cards with interest rates that can be as low as 6 percent. What you can do is try to pay the balance in full and keep your current card. Then you can apply with your local credit union to benefit from the rate they offer. Alternatively, you can transfer the existing balance the same way you would do at a traditional bank.
Step 5 – Cut Unnecessary Spending
Splurging and non-essential spending are the main culprits for piling debt, and this is especially true for low-income persons and households. If you tend to splurge and overspend, it is time to have a good look at your expenses. There are basic necessities to cover, including food, electricity, gas, water, etc. Routine expenses also count toward essential expenses. Examples include appliance replacement and repair, deductibles, medical costs and medications, car repairs, emergencies, and so on. Discretionary spending, on the other hand, includes things like parties, baby showers, birthdays, anniversaries, and holidays. If you have a piling credit card debt, then you may want to look at your budget and identify the things you can go without. They are destroying your budget. Non-essential expenses include vacations, luxury clothing, dry cleaning, going to the gym, going on outings or to the pub, and others. If you have a huge debt load to pay off and are living paycheck to paycheck, it is important to cut unnecessary spending. Then if you have a seasonal or part-time job and your income is very low, you may want to cut utility expenses as well (like opt for a basic internet plan).
There are other ways to reduce your credit card debt by Christmas, and one is to ask your financial institution for a lower interest rate. If you are a regular customer, your bank may be willing to slash the rate. If you have a very good or spotless credit score, you are likely to get a lower interest rate. If you use multiple cards, one way to reduce your debt is to pay off one card at a time. It is easier to start with the lowest balance first. If your goal is to improve your credit rating, however, you may want to start with the card that has the highest utilization rate. A third option is to apply for a loan through a peer to peer network to pay off existing credit card balances. Peer to peer lenders offer affordable loans with rates that are significantly lower compared to standard cards. A spotless or very good credit score and a steady job is all you need to qualify.
