Do you want to eliminate your credit card debt? Excellent! Here are 7 strategies that will allow you to get rid of your balances quickly and without paying unnecessary interest.
Target a map
One of the strategies to eliminate your credit card debt is to target a single card. How to choose this card? It depends on your goal.
To stay motivated
If you want to get rid of your credit card debt, but you are afraid of discouraging yourself, first pay the card with the lowest balance . Once it has been paid in full, move on to the next. Remember to make the minimum payment on your other cards to avoid affecting your credit report and that interest becomes out of control.
To improve your credit
If you want to increase your credit score, in this case, target the card with the highest usage rate . The utilization rate is the balance of the card divided by the limit of the card. For example, if you have a card with a limit of $ 10,000 and you have a balance of $ 7,500, the rate of use of the card is 75%. This strategy works because the high usage of a credit card is viewed negatively by the credit agencies, even if you pay on time!
To pay the least interest
If you want to pay less interest, put the most money possible towards the card that has the highest interest rate . Focusing on the highest interest rate card will save you a lot in the long run. If you have a card with a balance of $ 500 and a 15% interest rate and a card with a balance of $ 5,000 and a 20% interest rate, it is better to start by paying the card back to 20% ( yes, this is counterintuitive). Of course, always make the minimum payment on the card at $ 500, but do not pay a dollar more before you have fully repaid the card at 20%.
Reduce your interest rate
If you want your interest rate to be lower, it is often possible to call your creditors to get a reduced rate. However, be aware that your chances of getting a lower rate are better if your credit is good and you have been a customer for a long time. This can be helpful because if you have been offered a lower interest rate, you can mention it at the competition to receive a better offer.
Transfer your balance
Many credit cards or lines of credit offer you to transfer your balance at a promotional rate (often 0 to 3%) that will be applied for a certain period of time (rarely more than 6 to 12 months). You can transfer your balance to save interest, but do it very carefully. When you transfer a balance, you will have at your disposal a window of opportunity for low interest rates (between 12 and 18 months). This is the window of opportunity in which you should repay your debt. Otherwise, you could end up with a much higher rate than you had before.
Some disadvantages of this option: you should avoid making purchases with your new card because low interest rates will not apply and you will probably have a balance transfer fee of 3 to 4% of your total amount transferred .
Refinance your home
If you own a house, condo, or other property and have equity available, it can be very beneficial to refinance (remortgage). To find out how much equity you have available, you need to take the market value of your property and subtract the balance from your mortgage. If your equity represents more than 30% of the market value of your property, you are most likely eligible for refinancing.
The advantage of refinancing is that you will get a low interest rate and a longer period to pay off your debts. If you choose this option, however, avoid using your credit cards and find yourself in the same situation again. It is recommended to cut all but one credit card with a low credit limit (no more than your monthly salary).
Make two minimum payments per month
Here is a very simple solution: you agree to deposit two minimum payments per month. In doing so, your average daily balance will be reduced, which means you will pay less interest in the long run. In addition, you will repay your debt in less time.
Make a consumer proposal
The consumer proposal may also be a valid option for you. A consumer proposal is a negotiation with your creditors to reduce your debts (sometimes up to 70%) and extend your payment period over a greater number of years while completely eliminating interest. You will only need to make a monthly payment and this payment will be calculated based on your personal financial situation and your budget. The proposal will prevent your creditors from harassing you, but will affect your credit rating. In order to file a consumer proposal, you must contact an authorized insolvency trustee (SAI) who will evaluate your situation and write the proposal for you. We can help you with this solution.
If you are not able to implement these strategies, you may have to go bankrupt. The trustee will personally take care of your creditors and he will also have some of your assets (you will not lose everything). During your bankruptcy, you will have to attend budget consultation sessions that will give you tools to better manage your personal finances. A bankruptcy usually lasts 9 months (for a first bankruptcy with low incomes), but it can also last up to 36 months (for a second bankruptcy with high incomes). Once your bankruptcy is complete, you will be free from all your debts (except for some non-forgivable debts, such as fines, late alimony and other).
Whatever the case may be, you can always count on Frances Yout & Associates Sendic to help you overcome your financial difficulties. Contact us for a free consultation where we can analyze your financial situation and present your options.