If getting into a better financial position is your New Year's resolution for 2021, a great place to start is making a plan to pay off your credit card debt(s)
. Carrying a credit card balance from month to month can lead to paying massive amounts in interest. Here are some things you can do to leave your credit card debt in 2021.
1. Reduce Your Interest Rate
The interest rates on credit cards are normally much higher than other kinds of accounts. This can mean that more of your monthly credit card payment goes towards interest instead of the balance
of your account, which can make it difficult to pay off credit card debt. Reducing your interest rate will allow you to pay off your debts faster. Ask your credit card company for a lower APR. Even a slight decrease can save you money.
If you qualify, another option is to use a balance transfer card in order to take advantage of a promotional introductory rate. Many of these cards offer 0% APR for the first year. You will want to make sure you can pay off the balance before the promotional rate expires as the rate could increase drastically after the promotional time period passes. If you do not expect to be able to pay off your credit card debts within a year, consider a applying for a personal loan. If you are eligible for a fixed-rate loan, you could use the loan to pay off your cards and save money on interest in the long run.
2. Choose a Debt Payoff Approach
If you choose to go forward paying off your credit cards individually (as opposed to using a balance transfer card or a personal loan), you will need to create a payoff plan. Two common methods of prioritizing debt repayment are the debt snowball method and the debt avalanche method.
With the debt snowball method
, you put your focus on the debt with the smallest balance first. While continuing to make minimum monthly payments on all of your other accounts, you'll put extra money towards the account with the smallest balance. Once this is paid off, you will be able to put even more of your financial resources towards paying off the next debt.
Conversely, the debt avalanche method
starts with you putting any extra resources into paying off the debt with the highest interest rate. You will still continue to pay minimum balances on your other accounts, but the faster you are able to pay off your high interest rate debts, the more money you will save in the long run and the quicker you will be to pay back the full amount of your debt. This method will save you more money, although the quick succession of paid off accounts with the snowball method may provide more motivation. Choose the method that you think will give you the best chance of success.
3. Budget to Pay More Than the Minimum
If paying off your credit cards is your number one financial priority this year, set up a budget that allows you to put more than the minimum payment towards your CC debt every month
. This might mean making some temporary sacrifices to free up more money in your budget (eating out less, canceling cable to opt for a streaming service, etc.). Any unexpected income should also go directly towards your credit cards. Bonuses, tax refunds, cash gifts, and any other random cash will help you work towards that ZERO balance.
Veitengruber Law offers a number of customized debt management solutions to help you achieve your financial goals. While some people are afraid of the potential "lawyer fees" only adding to their debt pile - rest assured that our fees
will show you a very fast return on investment. And, most importantly - we aren't in this business to take your money! We want to help. Let 2021 be the year you take charge of your debt.