We owe a lot of money. In fact, the average U.S. household owes $16,061 in credit card debt. Here’s another shocking number: In total, American consumers owe $747 billion in credit card debt. 1 If you’re one of these households, chances are you’re looking for ways to get out of debt and stay there. The good news is, there are steps you can follow to pay down high interest rate debt, which is likely eating up your disposable income and keeping you up at night.
Pay off debt faster with a balance transfer.
Review Your Monthly Income
Your goal is to pay as much as you can each month. To do that, start by reviewing your income and current spending habits to see how much you can put toward debt repayment. Depending on your debt level, you may need to reduce some expenses. This might include foregoing cable until your debt is down to a comfortable level, or even walking more and relying less on gas to get around in a car.
Identify Debts In Order of High- To Low-Interest
Now that you have an idea of how much you can put toward debt repayment each month, take stock of the individual debts you have. Looking at all your debts, you can build a debt payment plan that will help keep you on track. You may be tempted to put your money toward your largest debt, but your focus should be on your high interest rate debt. That’s because this is the bucket that’s siphoning your money most. Once that debt is repaid, focus on your next-highest-interest debt, and so on. 2
Consider A Balance Transfer If It Is Available
Wouldn’t it be nice if you could slash your interest rate in half, or even wipe it out altogether? That might be possible with a balance transfer. It works like this: By accepting a balance transfer, you can bring your existing balance, or several balances from different cards, to a new card with a low introductory interest rate offered over a certain period of time. Expect zero to three percent introductory interest rates that usually last six to 18 months, depending on the card. A few things to watch out for: Balance-transfer fees (typically three to five percent of your balance), and your credit score, since banks are wary of lending to those with poor credit. 3
Pay Off Debt Faster with a Balance Transfer.
Negotiate for a Lower Rate Payment Plan
If you review your income and feel it will simply take too long to pay off your debts, or a balance transfer isn’t an option, you might consider contacting your lenders to see if they will work with you on a plan to renegotiate your debt. It’s not an easy process, and there are three things to be aware of.
First, know which of five plans you’re after. These include lump-sum settlement, workout arrangement, forbearance, debt management plan, and debt settlement. (Click here for more detailed information on these plans.) Then, go back over your income and review your fixed expenses like rent, and figure out how much you can pay. You’ll want to look ahead to see what out-of-the-ordinary expenses you can expect, and make accommodations for them. Finally, know who to ask for when you start contacting your lender. Often this is the credit manager, not the customer service representative. Once you’ve made contact, get the person’s name, ID number and direct-dial telephone number. 4
Create A Visual Reminder of Debt Payment Progress
Whether it’s a Post-It on your wallet to remind you not to over-spend, or notes in your calendar ticking off the days until you are debt-free, a visual cue to keep you focused will help you meet your goal. 5