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If you are one of the millions of Americans flooded with debt, it can often be an anxious time. For most, they don't know where to even begin as there is so much debt over so many different sources, it is hard to get started. If you are one of those people, fear not. Ridding yourself of that debt won't be easy, and it won't be a short road. However with due diligence and persistent work, you'll find yourself out of debt or at least in a more comfortable spot before you know it. So, where do you start?
In this article, we will go over the right way to pay off bad credit card debt so you can improve your score and get your finances back to normal. Read on to rid yourself of financial burden.
Look at the Big Picture
First, you need to sit down and face the reality of your debt. An honest sit down with all of your credit statements and current debts is needed. Analyze each credit situation you find yourself in. Once you have a clear understanding of the debt you are in, you will be better prepared to pay it off.
Call the Credit Card Companies
After gathering all of this information and looking it over, the first question always is, "What credit card should I pay off first?" What often happens is the cardholder will attempt to pay off all of the debt at one time. That is not the way to go about beating down debt. This kind of approach is going to take the longest time and as a result will cost the most money. Attacking your debt takes strategy. You want to pay off the debt as fast as possible while spending the least amount to do so. So, first things first: call each credit card company.
By doing this, you are letting each company know your current financial status. When you do that, it opens up a few doors you may not expect to be there. You'd find it very shocking that these credit card companies, as long as you are in good standing, are open to working with you. By calling each, you should look for two things up front.
- Is there a settlement amount they'd be willing to make?
- Is there a way to lower your interest rate?
Sometimes, card issuers will offer you a settlement amount that will clear your debt for potentially a fraction of your current amount. This doesn't often happen, but before you attempt to knock down your credit, you need to know the options available to you.
The opportunity is to lower your interest rate. This will help slow down the amount of interest that builds on your account and will allow more of your monthly payment to go towards knocking down that balance. This is the option most credit card companies are willing to do to help work with you.
Prioritize Your Payments
Once you've exhausted all of your options in the preliminary processes of analyzing your debt, it is time to look at all of your credit cards. Two simple things to look for are:
- Your total debt on each card
- Your interest rates on each card
Simply put, the card you need to pay off first is the card with the highest interest rate. Higher interest rates lead to more money owed. To pay these off, you have two options. The first option is to simply throw as much money you can at the card until the balance reads zero. Having a monthly budget is a great way to see just how much money you can put towards paying down this debt. The second option is to apply for a balance transfer credit card. Odds are your credit score isn't going to be super high, but there are plenty of credit cards on the market today that offer a solid balance transfer offer.
Along with your high interest yielding cards, try and knock off the low balance cards as well. Dave Ramsey was made famous by his debt snowball approach where consumers feel emotionally invigorated when seeing debts disappear. It's not the best mathematical approach in certain situations, but in most cases, it works really well.
Focus on Your Goals
Overall, the biggest key to paying down credit card debt is to stick with your plan. That is why the assessment period is so important. You need to exhaust all possible avenues before you even start, as to give yourself the best plan. Once you confront the debt, the rest is easy. Come up with a payment plan on your own and tear that debt down! You will find that with a lot of hard work, being debt free is an achievable dream.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.