Credit Card Debt: 3 Strategies for Success

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Credit Card Debt: 3 Strategies for Success

Post Series: CREDIT HELP

The recession may be in our rearview mirror, but since credit card debt isn’t a thing of the past, plenty of people still feel like they’re in the equivalent of a financial car wreck. (If that’s your life right now, you may want to check out U.S. News Best Credit Cards for Bad Credit of 2017.)
If you have far more debt to pay off than money coming in, you can feel pretty helpless. And, unfortunately, it often takes far longer to get out of debt than it took to get into it. So if you’re going to get out, and if you’re going to do it in a way that doesn’t include bankruptcy, you basically have two strategies or a combination of both.

The snowball method. If you have several credit cards, you could work on paying off the smallest debts first, even if others have high-interest rates.
It’s a psychological approach rather than the most mathematically efficient method, admits Joseph Carpenito, a financial advisor with Raymond James Financial Services who is based out of Boca Raton, Florida.

“Most people attack their highest credit card balance first, with the reasoning that they are paying the most in yearly interest on that card,” Carpenito says.
This makes sense from a mathematical standpoint, and it’s a good plan. But it isn’t for everyone.
“Unfortunately, life gets in the way and that card never gets paid off, and they are only able to make a dent in the balance owed,” Carpenito says.

If you like landing small victories, the snowball strategy is probably for you, Carpenito says.
For instance, let’s say that you have three credit cards: one is a store credit card with $500 on it; a second credit card has $2,000 on it; a third has an eye-popping $7,000. Obviously, you pay the minimum payment on each every month, but the most money – as much as you’re comfortable with and hopefully well over the minimum payment – goes toward the store credit card. Once that’s paid off, then you take the money you were saving that went to the store credit card and use that every month to go toward the credit card with $2,000. Once that card is finally paid off, all the money that went to the card with $2,000 on it – you now add to what you’re paying every month for the $7,000 credit card.

It’s called the snowball strategy because the amount of money going to each successive card is getting bigger, like a snowball rolling down a hill, and your debt is continually getting smaller.

The avalanche method. This is the strategy of paying off the cards with the highest interest balance first. You pay at least the minimums on the credit cards with the $500 and $2,000 debts, but you throw most of your money at the credit card with $7,000.

“In the long run, this is the fastest way to get out of debt because it cuts the rate of continued debt accumulation,” says Byna Elliott, based out of Detroit and a senior vice president and director of community and economic development at Fifth Third Bank.

In other words, think of all that interest that’s accumulating with the $7,000 card. If that unsettles you, and you can deal with paying off multiple credit cards, then the avalanche method is probably what you should use.
Elliott approves of the snowball method, too, however. It all depends on what works for your financial situation.
The throw-everything-but-the-kitchen-sink method. This isn’t an official strategy that you’ll hear personal finance experts champion, but as you can figure out on your own, you can just funnel money at your revolving debt with no real strategy. That isn’t necessarily bad, as long as you’re continually shoveling more than the minimum payments on your cards. If you’re deep in debt, and you only pay the minimum payment, typically you’ll stay in debt for years.

As you shovel that money toward your credit cards, here are some things you might want to consider:
Transferring your debt to a credit card with a zero percent introductory annual percentage rate. Unfortunately, this may not work for people with thousands of dollars in revolving credit card debt because, thanks to their revolving debt, their credit score is in the toilet, and no credit card is going to give the zero APR.

If you are need of assistance with your credit card debt, and you want to consider bankruptcy or you are being unfairly harassed by your creditors feel free to contact the attorneys at Justin Clark & Associates. Your welcome to a free no cost, no obligation consultation. Just complete this form below or call today at 321.282.1055.

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