4 Steps to Lowering Your Credit Card Interest Payments
Are you feeling the squeeze of your credit card payments? If you have credit card debt, and can use a few strategies to help lower your debt, we have a few strategies for you:
Step 1: Pay Your Balance if You Can
If you have credit card debt, you will almost always be better off paying off your debt versus putting your money into some type of investment or spending your money elsewhere. Think of it, if you get a 5% annual return on your money in an investment you’re doing great. Even if you’re on a low interest credit card charging you 9.99%, you’re paying double what you’re earning from your investment. So that $500 that you invested, earns you $25,but you could have saved yourself $50 if you would have paid down $500 of your credit card debt. In the end you were $25 worse off by investing the $500 versus paying down your debt at 9.99%. So the rule is, pay your credit card balance if you can.
Step 2: Find a Lower Interest Credit Card
If you’re carrying a credit card balance, and you are not in a position to pay down your balance, see if you can transfer your balance to a low balance transfer credit card with a promotional rate and/or a low interest rate credit card. If you have a standard credit card, your interest rate is probably around 19%, if you have a store card it’s probably around 29.99%. There are no-fee balance transfer offers in the marketplace with 0%-1.99% interest offers for 6-10 months. That alone could save you hundreds of dollars. Just make sure to watch out for what your interest will become after the promotional period, many jump up to 21.99%. If that is the case, you can either find another balance transfer offer at the time, or just transfer your balance to a card that has an attractive ongoing rate. We have some with 5.99% and 9.99% long-term interest rates.
Step 3: Pay More Than the Minimum
Many credit card issuers allow you to pay the greater of 1%or $10 minimum of your credit card balance owing. This may seem like a convenience to you, but it will make your interest cost prohibitively expensive. By paying the minimum, you will end up paying as much in interest costs as you did for your original purchase over the life of the loan. Whenever you can afford to, pay more than the minimum. You have an extra $100, forget about going out with your friends, that’s a luxury, pay down your debt!
Step 4: Don’t Be Late
Don’t make a late payment. When your late, many credit card companies reserve the right to increase your interest rate to their penalty rates. If you have a promotional rate, such as a 1.99% intro balance transfer rate, when you’relate on a payment, you will likely lose the promo rate and find yourself stuck with a 21.99% interest rate. If you’re the type who frequently forgets to pay on time, link your credit card to your checking account so that it automatically pays your minimum payment. That way you will never miss a payment. If you want to add more to a payment, you can still do so whenever you want. Worst of all, when you miss payments, your credit score will be lowered,making it more difficult to find another credit card and potentially making other debt, such as a mortgage, more expensive as well.