If you want to get rid of high-interest credit card debt, the first step is to avoid adding to it. This will help you lower your interest rate fees and leave more money available to pay off your debt.
What Is a Finance Charge on a Credit Card?
According to the experts at SoFi Invest, “A credit card finance charge refers to all fees and interest you pay on credit card debt.” A finance charge is typically charged to the credit card company in exchange for their financing of your debt. Usually, these charges are only added if you carry a credit card balance.
If you pay off the entire balance when it’s due or participate in a promotional rate offer, you won’t be charged any finance charges. Usually, the finance charge is calculated based on the amount of money you’ve already paid off and the length of time you’ve been carrying a debt.
Even if you make the minimum payment, a finance charge can still be added to your credit card account if you don’t pay the entire balance. This fee is charged on the debt you still have left to pay.
Ways To Pay Down High-Interest Credit Card Balances and Finance Charges
1. Pay Using Cash
While credit cards can help build a strong credit score, it’s important to avoid using them if you can’t pay off the entire balance each month. So, for example, if you’re carrying debt, the first thing that you should do is to stop using credit and switch to using cash instead. This will help keep you from going into debt further and improve your spending habits.
2. Transfer Balance To Another Credit Card
A balance transfer is a smart way to lower your credit card debt. It allows you to transfer the debt from a high-interest card to one that has a promotional rate offer. This will allow you to pay off the debt without increasing it. Before transferring debt, make sure your credit is in good standing and you can pay off the balance in full each month.
3. Pay Extra Than Minimum Payment Due
Getting rid of debt faster requires paying more than the minimum payment that your credit card company requires. This will allow you to pay off the debt faster and avoid accumulating more.
Extra payments help lower your monthly payment and, in turn, lower your interest rate fees. It’s also helpful to know how much faster you can get rid of the debt if you pay more than the minimum. This can be calculated using an online finance charge calculator.
4. Increase Income to Pay Towards Debt
Aside from reducing your expenses, increasing your income can help you pay off debt faster. For example, you can earn extra money by working part-time or becoming a consultant or freelance contractor. Every extra bit of money you earn can pay down your debts quicker.
5. Double Your Monthly Payments
One of the easiest ways to lower your credit card debt is to make multiple payments each month. For example, if you’re currently paying around $50 a month, try doubling it to $100. This strategy will help you build a stronger credit score, as it will prevent you from going into debt further and missing a payment because you cannot afford it.
6. Get Credit Counseling
A credit counseling agency can help you develop a customized credit card payoff plan and budget. They can also help you identify the best strategies to get out of debt. For example, one of the options that a credit counseling agency can provide is a debt management plan, which involves negotiating with your creditors to lower the interest rate and monthly payment.
Getting started as soon as possible can help you lower the interest rate and improve your credit score. Doing so will also help you become debt-free sooner and avoid going into debt again.