Credit card payments continue to be a part of the monthly obligations that consumers have to pay off. According to the latest data from the NewYorkFed.org, credit card debt as of the third quarter of 2013 increased by $4 billion. It is a mere 6% of the overall household consumer debt (with mortgage occupying a hefty 70%) but it is still a significant amount at $672 billion.
While the delinquency rate of credit card payments are going down, it nevertheless ends up being a big waste of your money because of the high interest rate. One thing is for certain, you need to do something about your credit card debt if not to at least eliminate the finance charges that could have been used to finance a more important expense.
5 dangerous ways to pay off credit card debt
Paying the bills is one of the top financial concerns in the country and that includes credit card bills. If you want to eliminate this debt, you should know that you have a lot of options before you. However, take note that not all options are actually a good idea. Here are 5 payment options that will probably bring you more harm than good.
Paying with a HELOC. Short for home equity line of credit, this means you will borrow money against the equity of your home. However, you need to be very careful about this because using debt to pay for another debt can be quite tricky. If you are just after lowering the interest rate, this will probably work but make sure to keep up with your HELOC payments. Otherwise, you could end up losing your home.
Transferring balances. Using a new zero interest credit card to transfer your high interest credit card balances may seem like a good idea. But you need to know that the zero interest will only be applicable for a specific period only. After that, the card will most likely have high interest too. Make sure that you if use this, you have a payment plan in mind that will enable you to pay down your debt significantly during the teaser rate promo period.
Using payday loans. These short term loans are just a bad idea because of the ridiculously high interest rate that they will take from you. Unless you are very sure that you have money coming in before the due date of this loan, do not use it. The consequences are just too great to ignore and it can suck you into a very bad debt cycle.
Borrowing money from relatives. There is a reason why family loans are highly discouraged and that is because of the risk that it places on your relationship. Money can literally ruin families so be very careful when you borrow money from family members. This can also be true for friends. You can ruin the relationship if you are suddenly unable to pay back your debt.
Getting money from your retirement. When you get money from your retirement plan, you will be subjected to penalties and you will lose out on the taxes that you will be subjected to. You should not get from your retirement fund unless it is the only option available. The Employee Benefit Research Institute (EBRI.org) reports that one out of five Americans borrow from their 401(k) and have yet to completely pay it back. Although it is technically your money, you will be jeopardizing your retirement if you use it as credit card payments. Here is a video from NBC News last January 2013 about people borrowing from their retirement money to help finance their debt payments. The report says that it is a growing trend for people who were laid off from work.
Better options to eliminate credit card balances
Credit card debt can literally destroy you and the things that you have worked so hard to achieve. Do not let it ruin you further by choosing the wrong payment method as mentioned above. Fortunately, there are options that you can follow to help your deal with credit card payments without fail.
Here are some of our best suggestions.
Live on less. USNews.com reports how a family paid off $118,000 worth of debt by living on less. While both couples worked, they committed one income (the entire amount) and with much discipline, used it to pay off the debt slowly but surely. This meant living on one income -which is very much possible through a frugal lifestyle. You do not have to be so drastic but you can actually choose to commit a certain portion of your debts to your credit card payments.
Increase your income. Take on a side job, capitalize on your hobby or sell off some of your things. These are options that you have to increase the monthly payments on your cards. It requires a lot of hard work but if you motivate yourself, you should be able to achieve this without difficulty.
Get debt help. You have the option to get help from a credit counselor to assist you in your debt struggles. You can choose from debt management or debt settlement. Know the debt relief options that you have and use it to help you make better progress at paying down your debts.
Your debt situation will only get better if you make sure that you will stay away from reckless credit card spending. You can pay it back religiously but if you continue to use it, you will never see the end of your credit balance. It is also possible for you to incur a new set of debts if you fail to learn the proper way of using your credit card.
Planning to reduce your credit accounts to minimize payments?
For some people, the only way that they can limit their credit card payments is when they limit their credit card accounts. It is easier to manage your credit cards if you only own a few. You do not have so many due dates to monitor and you will not be tempted to max out too many cards.
If you already accumulated a lot of cards, you may have to close off some of them. To do this will cost you a good credit score. Here are some tips in case you want to close some of your credit card accounts.
Make sure the cards you will close off are paid off already. In some cases, you can get in touch with your creditors to tell them of your plans to close the account. There are instances when they will offer you a lower rate. You can choose to take on their offer, pay off the debt and then close the account. If they do not offer you anything, you need to negotiate a payment plan with them.
Space the cancellation of cards a few months apart. This way, your credit score will have time to recover before you close another account.
Close of all accounts at the same time but only if you have no plans of getting a loan for a few months. Otherwise, your loan application could be given a high interest rate. Give your credit score time to increase first before applying for a new loan.
Apply for a new card before closing the old. In case you want to close an account because of the high interest rate and you want to replace it with a card with better rewards, make sure you get the new card first. Closing a credit card account might affect your new credit card application.