Credit card debt brings with it a number of problems. According to an Associated Press-AOL Health poll, people saddled with credit card debt have a much higher probability of facing problems with their health. In addition to health problems, credit card debt has the potential to adversely affect your credit score, which can make it difficult to apply for credit cards, qualify for a home or auto loan, or even be approved for a cell phone contract.
Fortunately, if you find yourself mired in credit card debt, you are not alone. Many people have weathered the credit card debt storm and have made it out alive and well, and better suited to avoid it in the future. Paying down credit card debt is possible, and the following four steps will make it much quicker and more effective.
1. Pay the minimum each month on every card. One of the easiest and most effective ways to protect your credit score even in the face of mounting debt is to pay off the minimum required payment on each of your credit cards each month. Usually, this amount is not very high, so if you can manage to pay this off you can preserve your credit score for the most part. By failing to pay the minimum payment, you risk penalty fees, increased interest rates, and harming your credit score.
2. Pay down the highest APR credit cards first. Credit card companies make the lion’s share of their profits by charging interest on the balance that credit card holders owe on their cards. Some credit cards charge higher interest rates than others. If you have multiple credit cards with different interest rates, be sure to pay down the balance on the credit card that charges the highest rate before you pay down the other balances. This has the potential to save you a boatload of money in interest fees.
3. Consider transferring a balance. As an offshoot of the previous point, if you have a credit card with a balance that is subject to an extremely high interest rate, you can potentially transfer that balance to another credit card with a lower interest rate. Just note that most credit cards charge a balance transfer fee of three percent of the amount of the balance being transferred. Many cards offer a long period of zero percent interest on transferred balance of up to 18 months.
4. Eliminate debt before saving large amounts of money. Be sure to pay down your debt before you begin to save cash. It’s helpful to have a small emergency cash account, but anymore than that and you should be putting the money towards paying off your debt. Paying off your debt before saving makes sense because the interest rate charged by credit card companies is much higher than any interest rate or return on investment you can generally earn by saving. In addition, paying down debt will help preserve your credit score.
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This article was written by Logan Abbott. Logan is the editor of MyRatePlan Credit Cards, and a personal finance and credit card expert with over a decade of experience.