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How To Manage Credit Card Debt

Guidelines For Paying Down Your Credit Card Balances

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Because credit cards usually have the highest interest rates of any of your debt, it is advisable to pay off any credit card debt you have as quickly as possible -- even if this means using your savings. If you spend $1,000 to pay off a credit card with a 17% interest rate, it's as though you've earned a guaranteed, risk-free 17% after-tax return on your investment. It's really difficult to beat that with any other investment.

Should you need cash in an emergency, you can always take a cash advance from your cards if necessary.

If your current health condition poses a greater risk of death than normal for your age, consider credit life insurance on the cards.

There are three guidelines to paying down credit card balances as quickly as possible:

Guideline 1. Pay the bill as soon as possible

Send whatever extra money you have to the credit card company as soon as you get the money -- so long as you have the money to pay the next minimum monthly payment and the other bills you need to pay.

If you have an Emergency+Fund, consider using money in it to pay down the debt. You are probably not earning interest on the money in your fund anything like the amount you are paying on the credit card balance. You can get additional money from the credit card later if you need it to pay for the expenses that would have been paid from the "Just in case" fund.

Note: if you pay money to the credit card company in between bills:

  • Don't be surprised if it doesn't show up on your next bill. Your payment and the bill may cross in the mail, or the payment may be received too late to show up on the bill. It will show up on the following bill.
  • Don't try to calculate the interest you'll owe on the balance by just comparing the amount you paid to the amount you owe. The interest calculation is more complicated than that.
  • Often you can access and pay your accounts through the bank's online service center.

Guideline 2. Try not to pay late

Credit card companies charge late-payment fees up to $35, even for a payment one day late. Many cards will also increase your interest rate if you are late twice within a certain time period -- an interest rate that sticks for the rest of the time the card exists. Even worse, late payments are usually reported to credit bureaus.

Guideline 3. Pay more than the minimum

Always pay more than the minimum, even if it's only a few dollars. If you're only making minimum payments on your debt only, it'll take a long time to pay it off. In fact, when you add interest on top of the interest you already owe, your debt probably increases if you only pay minimum payments.

For help creating a debt pay-down plan, try the calculators at offsite link. offsite link, offsite link.

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