Don’t carry a balance on your credit cards, they said. If you can’t afford it every month, they said, cut it up and throw it away.
Too late. You have accumulated a balance. You owe thousands of dollars, perhaps tens of thousands, on cards with interest rates approaching your chronological age.
A consumer can turn gray by chipping away at credit card debt. A borrower who owes $10,000 on a card with 20 percent interest and pays $200 a month will pay off the debt in eight years and change, at a total cost of $21,000, according to a popular credit card interest calculator. And that’s assuming the consumer never uses the card again.
Here are six strategies to get out of debt a little faster. All of them can save time and money. Choose the one that suits you.
Get an interest-free credit card
It sounds too good to be true: A bank will send you a credit card that earns no interest for 12, 18, or 21 months with no real strings attached.
A zero APR credit card may be the best way to reduce card debt in terms of pure savings. The typical card allows the customer to transfer thousands of dollars of debt from other accounts for a one-time fee equal to a small percentage of the balance being transferred.
After that, in most cases, your full monthly payment reduces your debt. Not a cent is lost in interest.
“A zero percent balance transfer credit card is an incredibly powerful tool,” said Matt Schulz, chief credit analyst at LendingTree, the online lending marketplace. “Being able to go a year, sometimes up to 21 months, without accruing any interest on a balance is really important.”
The downside: Once the promotion expires, the lender will start charging interest on the remaining balance. To avoid this, make a budget. If you can afford $300 a month on a card without interest and you have 18 months without interest, don’t transfer more than $5,000 to the card. In 18 months, the debt will be gone.
Remember, too, that “this will be a credit card that you’ll have in your wallet and possibly use after this promotional period ends,” said Bruce McClary, a senior vice president at the National Foundation. for Credit Counseling.
In other words, resist the urge to rack up more debt on the card once the zero-interest timer runs out.
Pay the smallest balance first
A consumer who has several debts with different rates and amounts can win a quick and painless victory simply by deleting one of them from the list. And why not start with the smallest debt?
Financial planners call this technique snowballing. Make a list of all your debts, choose the smallest and pay it off as quickly as possible. Pretty soon, a list of seven or eight debts can be whittled down to five or six, generating a snowball burst of momentum.
“It’s that momentum that keeps people excited,” McClary said.
Pay off the debt with the highest interest
A popular alternative to snowballing is avalanche: Rank your debts from highest interest rate to lowest. Then make aggressive payments on the one with the highest rate.
For a consumer with multiple debts, focusing on the one with the highest rate makes a lot of financial sense.
“Over time, you’ll pay less in interest because your goal is the highest interest rate first,” said Sara Rathner, a credit card expert at NerdWallet, the personal finance company.
The downside: If that high-interest debt is a large sum, it can take years to pay it off. The avalanche may feel more like a glacier.
Snowball or avalanche? “It’s really about figuring out what motivates you,” Schulz said. “Some people are motivated by small profits, so it’s better for them to pay off that small balance first and tear up that card and feel motivated. For others, it’s just about math.”
call a credit counselor
The techniques listed above are not for everyone. Borrowers with lower credit scores may not qualify for an interest-free credit card. Splitting and conquering one’s debts only works for those who have the cash to pay them off.
Some borrowers are in over their heads. They may lack the funds to even make minimum payments, leading to expensive fees. Fees and interest can push a credit card balance over a customer’s credit limit, leading to even more fees.
For them, one option is the nonprofit National Foundation for Credit Counseling. A credit counselor “can sit down and review your financial situation and offer a plan of action,” McClary said.
Nonprofit credit counselors can rescue borrowers from overdue notices and debt collectors. They work with lenders to stop or eliminate late fees, “over the limit” fees, and other fees, and to dramatically lower interest rates, which reduces the amount the consumer owes. The client makes a single monthly payment to the counselor, who distributes the money and sends it to creditors.
A counseling service can free a desperate borrower from debt “in four years or less, in many cases,” McClary said.
call the bank
A consumer with one or two credit cards who wants to start paying off debt should consider making a simple phone call to the banks that issued the cards.
First, look up your credit score. The higher the score, the stronger your trading position. Then call the credit card company and start a courteous negotiation. The card issuer may agree to lower your interest rate. The company may also waive onerous fees that add to your debt or offer a temporary suspension of monthly payments.
“It gets a little harder to be successful if you have multiple credit cards,” McClary said. And the cardholder can only achieve temporary forbearance, while a professional adviser can deal on a more permanent basis.
Consumers who don’t pay off their credit card balances every month shouldn’t use credit cards. But it’s not so easy to run out of money on credit, especially if the card is in your purse or wallet.
One way to dampen the temptation of credit cards is to put them out of the picture, credit experts say. Cover it in ice. Close it in a drawer. Cut it in two and throw it away. It’s much harder to swipe a card you don’t have.