Paying Off Credit Card Debt
“Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.” — poet Ogden Nash
Indeed, it’s never easy to tackle your credit card debt, but with half the year behind us, June is a great time to reevaluate the extent of your debt and start taking steps towards paying off your cards. In honor of Father’s Day this past Sunday, the ELM3 family would like to offer you some fatherly financial advice to assist you on your journey towards living a debt-free life.
Be honest with yourself about how much you owe. Often, we underestimate how much we owe, especially because confronting those numbers can be uncomfortable. Yet, it’s impossible to determine an effective plan of action without a clear idea of what you are up against.
Pay off one card at a time. You could consider prioritizing the card with the highest interest rate. Doing so would ensure you are accruing the least amount of extra debt. Another option is prioritizing the card with the smallest balance. It will be easier to pay off this card, and the victory might energize you to pay off the other cards. A final option is paying off the card with the highest utilization rate. A card’s utilization rate is it’s balance divided by it’s limit. If your card’s utilization rate is above ~20-35 percent, your credit score may take a hit.
Ask for lower interest rates. Studies often show it is fairly easy to get a lower interest rate if you are willing to call and ask. Take the month or two before you call to make yourself look like the golden customer. Pay off as much debt as possible and make all of your payments on time. Also take time to find competing offers that actually compare to your current credit card. When looking for competitive offers, make sure to review all aspects of the credit card (from interest rates to awards), to ensure you find an offer that is actually competitive with your current credit card. You can then use these competitive offers as leverage during your phone call. Finally, make sure you are fluent in your own credit history and score. You can use this information to support your claim that you are a good customer who deserves a lower interest rate.
Make sure you don’t put yourself in more debt while you try to pay off your debt. To ensure you aren’t tempted, leave your cards at home. Additionally, begin working on building an emergency fund. (See here for tips.) With an emergency fund, you won’t have to resort to using credit cards if unexpected costs arise.
