Whether you have become accustomed to paying the minimum necessary each month while your credit card debt rises like foam as if you need to control your expenses on several cards (and their corresponding financial charges and commissions), try to follow these tips to reduce your debts
First, eliminate the feeling of guilt
Credit card debt is the nightmare of many families. The average debt that a family in the United States has on credit cards is $ 7,400.
If the debt bothers you, you could stop taking the necessary steps to get out of it. It’s easy to think: “The debt reaches my neck, what else does a little more!” But if you correct your course now, you can achieve other financial goals, such as saving to buy a house or car or having a baby.
Leave all the cards at home, except one
In the same way that you would not put your money in five different bank accounts, you should not do it with your debt either. Put only one card in your wallet – the one with the most advantageous interest rates and payment conditions – and leave the others at home or, better yet, cut them off.
Using only one card allows you to give more account of what you spend, and if you tend to exceed the limit of what you can spend on your cards, using a single card will help you avoid major damages.
Use your debit card
If you use the card when you lack money, get used to using the debit card (linked to your checking or checking account). You will avoid accumulating debt on your credit card, you will not receive monthly bills and the money will come directly from your checking account, so you may think twice before buying something.
Pay with punctuality
If you pay late for your monthly fee. In the United States, the credit company will charge you a surcharge of 25 to 30 dollars. If you have three credit cards and you pay late twice a year (even if it’s the next day), you’ll end up paying up to $ 180 more per year, check the interest rates at the banks in your country.
If you forget to pay on time and you remember the same day the payment is due or a day later, call the credit company. Some will allow you to make a payment over the phone. You give them the check number you are going to send and the amount, and you send the check. Sometimes they charge the equivalent of 10 or 20 dollars for this service, but that is half of what the fine for late payment would cost you, and will avoid a negative note in your file. You can also make a payment online, but find out if they charge a commission for the transaction.
The interest on credit cards ranges from 0% to 30% or more, so if you already have accumulated debt, you have to know exactly what interest rate you are paying. You will find this information in the small print of your monthly bill. If the information is confusing, call your credit company and speak with one of their representatives to explain all the details.
Why is the interest rate so important? Suppose you owe $ 1,000 at 22% interest. If you pay only the mandatory minimum of 3%, it will take 146 months (12 years) to settle that amount and you will end up paying 1,237 dollars of interest, more than the original debt. If your interest rate were 12%, it would take 96 months (eight years) to pay the same amount. Although it is still a very high amount, it represents a 50% money saving.
Reduce the interest of your current card
Some experts advise you to call your credit company and tell them you want to cancel your card to transfer your balance to another card with a lower interest rate. Sometimes, your company prefers to reduce your interest rate rather than lose you as a client, but this strategy is not entirely safe and only works if you have a good track record as a customer.
Get a card with a lower interest
Unless you are already paying the lowest market interest, you may want to transfer your balance to a card with a lower interest rate. However, beware of so-called introductory rates. They usually last four to six months and then can go up to 30% or more. And if you pay behind schedule one of your monthly installments or you go over the limit, the interest can shoot.
Unless you know for certain that you can pay the balance within the time specified for the initial rate, you will get more out of a card with a higher interest, but fixed. One last trap to avoid: Pay attention to the credit limit that you have been granted because if you exceed the allowed amount your credit score could drop, which the banks use to decide if they grant you a loan or not.
These links can help you find cards with a low annual interest rate (in the United States).
Beware of annual fees!
The credit companies that charge you an annual fee for the card usually offer lower interest rates, but you have to calculate if that really counts towards you. For example, if your balance is about 1,000 dollars a month at 6.9% interest, and apart from the debt you have to pay 50 dollars a year to keep the card active, that would be equivalent to having a 12% interest card without annual payment.
Consolidate your debt
If you are starting to lose control over your debt, there are many companies specialized in consolidating your payments. In general, they offer you a low-interest loan for a longer period than usual so that you can return the money. As additional services, they can negotiate with creditor companies to lower your initial debt, and can even help you recover your credit score.
However, you must be very careful with the company you choose because the consolidation could end up being more expensive than if you paid your debts individually and on your own. Make sure you read the fine print of the contract and ask yourself what they earn, because although the interest they offer is low, then they usually charge commissions for any service.
Be very careful because many debt consolidation companies present themselves as advisors, but their advice is not always reliable. There are those who have ended up giving their homes as collateral for a loan or using the savings for retirement to pay the company that negotiated the consolidation.
Most financial experts believe that it is better to pay debts individually and without any agency.
In the United States, the consumer protection service offers several reports (in Spanish) to help you with credit and debt issues.
The National Foundation for Credit Counseling (NFCC) is a nonprofit organization certified by the US Department of Housing and Development (HUD), which operates throughout most of the country. Visit their website in English or Spanish, or call 1-800-682-9832, where they will assist you in Spanish, so they can direct you to the nearest Consumer Credit Counseling Services office in your city. There they will be able to negotiate with the creditor companies and work with you on a payment plan that will help you recover economically at a minimum price.
If you do not live in the United States, check with the Ministry of Finance in your country to which association you can approach to protect your financial rights. In Mexico, for example, there is the National Commission for the Protection and Defense of Users of Financial Services (CONDUSEF) to guide, address and resolve complaints and claims of users of financial services and products. You can call them at this toll-free number: 01 800 999 80 80.