Want To Save Money On Your Credit Card Debts? Here’s How!

admin | March 9, 2013

English: First 4 digits of a credit card (Photo credit: Wikipedia)

These days, credit card debt has become a way of life for many. More people have balances on credit cards today than ever before. Another staggering statistic is that most people spend too much money on their credit card debts! The truth is, there are tons of people out there that qualify for lower interest rates than they currently pay. As they’ve paid off past debts, they’ve increased their credit scores and reduced their debt to income ratio. Even those that don’t qualify for lower interest rates pay too much by not using structured payment plans. Here’s how you can pay much less on your credit card debts:

Paying Less In Credit Card Interest 101

Before I start with giving you the steps, I want to let you know that this option is based on using balance transfer credit cards. It is not a one size fits all option, there is no such thing in the finance industry. I have seen this plan be effective for consumers who are not facing a financial hardship several times. However, if you are going through a financial hardship, I strongly suggest reading “Understanding And Applying For Financial Hardship Programs”.

Step #1: Get Prepared: Before you do anything in life, it’s incredibly important that you get prepared. This is incredibly important when managing credit card debts. To get prepared, you will need to make a list of all credit cards you currently carry a balance with. Your list should include lender names, balances, interest rates, customer service phone numbers, pay to addresses and account numbers. You should also make sure to order your list from highest interest rate to lowest.

Step #2: Check Out The Balance Transfer Market: If you have good credit scores and, your total credit card debts amount to less than 15% of your annual income, you most likely qualify for balance transfer credit cards. These special offers allow you to use them to pay off high interest rate accounts. Often times, they come with 0% promotional interest rates and incredibly competitive standard rates. Do a search for balance transfer credit cards and, if any beat your current terms on a long term basis, compare a few and apply for the the best offer.

Step #3: Transfer Your Balances (if applicable): If you have been approved for a low interest rate balance transfer credit card, start transferring your balances from highest interest rate to lowest. If you can get all of your debts onto your new card, great! If not, that’s OK too, just make sure to get your highest interest rate debts paid at a lower rate. Transferring your balances is a pretty simple process. Simply call the lender for the card you were approved for and ask the representative to process your transfers. With the list you made earlier, you will be able to answer any questions the representative has for you!

Step #4: Rewrite Your List: Now that some interest rates are lower, create another list of your credit card debts. Your list should include everything that was in the first list and, be ordered from highest interest rate to lowest.

Step #5: Create A Constant Payment Plan: When you pay attention to your credit card minimum payments, you will notice that as your balance goes down, so does your minimum payment. As your payment goes down, you have more available funds that can be paid to the principle balance that you carry! This is the concept that the constant payment method was based on. To create a constant payment plan, simply add up all of your minimum payments. Now, ask yourself, “Is this all I can send or, can I afford to pay more? If I can, how much can I afford total?”. The total number you come up with will now be your constant payment. From this point forward, you make a promise to yourself that you will not pay less money towards your debts than this total, until your debts are completely paid off!

Step #5: Stack Your Debts To Avoid High Interest Charges: If you have multiple balances, on some debts, you will pay higher interest rates than others. By allocating all extra funds to your highest interest rate account, you will pay less interest overall throughout the life of your debts. Therefore, every month, pay your minimum payments on your all of you credit cards with the exception of your highest interest rate. Whatever amount is left in your constant payment should be sent to your highest interest rate credit card. Once the highest interest rate is paid off, send all extra to your next highest rate debt. Continue doing this until your debts are completely paid. If you do, you stand to save thousands of dollars in interest and years of paying off your debts!

A Big Thanks

That’s all for today everyone. However, I’d like to thank you for taking the time to read my article and encourage you to come back to SaveALittleMoney.com to my future guest posts!

About The Author – Joshua Rodriguez

This article was written by Joshua Rodriguez, proud owner and founder of CNA Finance. The inspiration for this article was provided by his recent series, “Balance Transfer Credit Cards – A 7 Seven Week Guide To Understanding This Option”. Join the conversation about this article, Joshua’s series or any personal finance topic of your choice on Google+!