With the exception of a payday loan, credit card debt is probably the most expensive money you’ll borrow. Which is why you should get rid of it as quickly as possible. After your credit card balances are zero (or you at least pay them off every month), you can do fun stuff like beef up your emergency fund or save for a house.
Here are four simple ways to get out of credit card debt fast.
1) Ignore creditors where the statute of limitations has expired.
Pay no mind to credit card debt, or any debt, for which the statute of limitations has passed. Why? Because, in many cases, the creditor is powerless.
- The credit card company or collection agency can’t sue you.
- If it’s been seven years since you originally defaulted, the collection account must be removed from your credit report.
- Under the Fair Debt Collection Practices Act, you can ask the creditor to stop contacting you about debt repayment. And under the law, they have to comply.
I’m not saying you should never pay old debts. You borrowed the money; you owe it. If you can afford to pay it back . . . you should. But if you can’t, don’t stress.
Each state has a different statute of limitations, and the time period varies by type of debt. Check with your state for more information.
2) Receive more money in your paycheck (without earning a raise).
Many financial gurus contend that tax refunds are a result of interest free loans to the government.
Nowadays, the average savings account pays less than 1% a year. As long interest rates are pitifully low, does it matter if you receive a big tax refund? Well, it matters if you’re in debt. Because then, we’re not squabbling over parking meter change.
You’re lending money at 0% and borrowing it at 30%–maybe more. The difference could amount to hundreds of dollars. Use your money to pay down debt during the year.
To receive more of your cash when you earn it, adjust your withholding allowances. Use a tax withholding calculator to get a rough idea of how changing your allowances will affect your paycheck.
3) Use a 0% balance transfer card.
If you have great credit, consider taking advantage of a 0% balance transfer offer. More of your payment will go toward principal instead of interest, thereby allowing you to get out of debt sooner.
Consolidation of credit card debt with a balance transfer doesn’t work for everyone. Skip this tactic if you’re an outta control spender and continuing to plummet deeper in debt. You ain’t ready for this. A balance transfer will only make your financial situation worse.
Keep in mind the promotional interest rate is good for a limited period. Also, there’s almost always a transaction fee applied to the transferred amount. So even 0% balance transfer offers aren’t “free money.”
Refer to Creditcard.com’s balance transfer calculator to see how much money you could save on interest.
4) Get a low(er) interest rate, peer-to-peer installment loan.
So your credit history is less than fabulous? You likely won’t qualify for the best credit card balance transfers.
Peer-to-peer lenders such as LendingClub and Prosper.com accept borrowers with credit scores in the mid 600s. Although interest rates are higher than what you’ll pay on a 0% balance transfer credit card, the terms on installment loans are, generally, better. The interest rate is fixed, the loan period may last up to five years, and you’re able to borrow more money.
In order to nix high interest rate loans you have to pay your liabilities. Simply moving debt from one creditor to another won’t get you anywhere. However, you can save more money in interest and reach your financial goals more quickly by using the above techniques.
What tips have you used to get out of credit card debt?