5 Ways to Pay Off Credit Card Debt

Pay Off Credit Card Debt

Paying down credit card debt is one of the best methods for repairing credit and improving your credit score. Here are easy and painless ways you can pay off your credit card debt:

1. Pay More Than the Minimum

With most minimum payments, it can take years to pay off credit card debt. Paying the minimum will not only hurt your credit score, but it will cost you a ton of money in interest. If you can afford it, you should pay more than the minimum.

If you can’t afford to pay more than the minimum, keep in mind that as you pay the principal down, your minimum payment will go down as well. However, you should keep paying the same amount you were paying before in order to pay down your debt faster. Eventually, you will be able to pay more than the minimum and repair your credit.

2. Find Extra Money

If you can’t afford to pay more than the minimum payments, try and find extra money. You don’t have to get a second job to pay down debt. For example, if your minimum payment is $40, be conscious of the fact that only $40 more per month will double your payment. You may have extra money in your budget or you may be able to earn cash. Here are some tips:

  • Fill out surveys
  • Use apps like Ibotta to get cash back from shopping
  • Use coupons
  • Try a no-spend challenge
  • Reduce your spending by just $10 per week

3. Use the Snowball Method

For multiple credit cards, the best and simplest way to pay them off is to use the snowball method. With this strategy, you pay off the card with the lowest balance first. Then, you put the money you were using for that card toward the card with the next lowest balance, and so on. Here’s a step-by-step example:

  1. You have three cards. One has a balance of $300, the 2nd a balance of $1,000, and the 3rd has a balance of $1,500. You’re paying the minimum payments on all three, but you have an extra $50 you can use toward the debt.
  2. Take the extra $50 per month and apply it toward the 1st card; then, pay minimums on the others until they are paid off.
  3. Take the extra $50, the 1st card’s minimum and the 2nd card’s minimum, and apply to the 2nd card until it’s paid off. Continue paying the minimum on the 3rd card.
  4. Apply the $50, the 1st, 2nd and 3rd card’s minimum to the 3rd card until it’s paid off.

You will be debt-free relatively quickly without having to put a lot of money toward your credit cards.

4. Make the Most of Unexpected Cash

The fastest way to repair credit and pay off debt is to pretend extra money doesn’t exist. If you get a raise, bonus, overtime payment or cash gift at work, apply it toward your credit cards. You should budget as if overtime or bonuses don’t exist. That way, when you get the money you can use it to pay off debt or build savings.

5. Pay Twice

Some credit cards calculate interest based on average daily balance. If your credit card is one of them, remember that the easiest way to pay off the balance is to pay twice per month. Before you panic, you don’t need to pay twice the minimum payment each month. Instead, take your payment and divide by half. Pay that amount every two weeks. This will reduce your average daily balance, which will reduce your interest so you can pay off debt faster.

You can repair your credit score and pay off debt by following these strategies. Credit card debt may seem daunting, but you can unbury yourself and improve your credit.
 

Sources:

https://www.thesimpledollar.com/the-debt-snowball-concept-how-i-made-it-work-for-me/

https://www.nerdwallet.com/blog/credit-cards/minimum-payment-credit-card/

http://www.investopedia.com/terms/a/averagedailybalance.asp

Debt after Death: 10 Things You Need to Know

When a loved one passes away, one of the last things you want to hear is debt collectors calling to try to take their money. Unfortunately, dealing with a loved one’s debt is a chore your family will have to take care of. Here’s what you need to know.

Debt After Death

1. Debt Isn’t Inherited

Debt does not pass on to family members. If an account is in one person’s name, creditors can’t make anyone else pay off the debt. If someone dies with debt and no assets to pay it off, the creditors take the loss.

2. Co-Signers Become Fully Liable

One common point of confusion is the responsibility of co-signers to an account. Many people don’t realize that co-signing involves much more than helping with the credit check.

When you co-sign a mortgage, credit card or other loan, you’re saying that you will pay in full if the primary account holder can’t. This includes if they can’t pay due to death, and creditors will coldly enforce this provision.

You should also be aware that some loans may contain a provision that they become payable in full immediately upon either the primary account holder’s or the co-signer’s death. This could require the survivor to refinance the loan, raid their retirement account or take a negative hit to their credit when the original loan defaults.

3. Spouses May Still Share Liability for Individual Accounts

One more exception to the debt isn’t inherited rule is spouses. Some states hold spouses liable for the other’s debt even if the account wasn’t a joint account.

One way this can happen is in community property states where any debts acquired during marriage become marital debts regardless of whose name was on the account.

Another is where courts decide who’s responsible based on who benefited from the debt rather than who signed for it. If debt benefited both spouses or the household as a whole, it becomes the responsibility of both.

4. Creditors Will Still Ask You to Pay

Just because creditors can’t make you pay doesn’t mean they won’t ask you to. Often, they’ll try to guilt you into it by saying things like it would harm the deceased’s honor or that you should do the right thing.

Not only do you not have to pay them, but by agreeing to pay in part or in full — even if you’re just trying to get them off the phone — you could be assuming legal responsibility for the entire debt. Simply tell the creditors to never contact you again, and they must honor your request.

5. Creditors Can Make a Claim Against the Estate

Debt may not be inherited, but it can reduce your inheritance. Creditors get first rights to any property in the estate up to the amount of the outstanding debt.

This applies even to family heirlooms left to a specific person in the will. For a mortgage, creditors can foreclose and take the family home.

If you want to keep a specific piece of property and the estate doesn’t have enough cash to cover outstanding debts, you will have to buy it from the estate at its fair market value.

6. Both You and the Creditors Need to Give Notice

Creditors only have a set period of time to make a claim against an estate. After that, they forfeit any claims.

At the same time, you can’t try to avoid creditors by keeping them in the dark. Depending on your state, you may need to file in probate court, notify creditors directly or take some other action. Failure to follow the rules could extend the creditors’ time to make a claim or leave you personally on the hook for the debts.

7. Don’t Use Credit Accounts

It’s illegal to use a loved one’s credit accounts to pay for things like funeral expenses even if the entire family agrees. Because the account isn’t in your name, it’s considered fraud.

Additionally, you shouldn’t use a loved one’s accounts to pay any bills they owed. Again, you technically don’t have legal authorization to do so. Instead, notify anyone you receive a bill from to cancel the account and contact the estate’s executor.

8. You Should Tell the Credit Bureaus

You should promptly notify the three major credit bureaus of a loved one’s passing. This will prevent identity thieves from trying to assume their identity and open new accounts in their name.

At the same time, the executor can request a copy of their credit report to identify debts that will need to be paid.

9. You Will Need Copies of the Death Certificate

Every time you work with a creditor or go to close an account, you will need to provide a copy of the death certificate. This lets the company know that you have legal authority to take action on the account and that your loved one isn’t faking their death to try to skip out on the debt.

10. The FDCPA Still Applies

The Fair Debt Collection Practices Act and other consumer protections continue to apply after death. If creditors harass you or lie about your responsibility for the debt, you may be able to sue them. If creditors wrongfully report your loved one’s debt on your own credit report, you have the right to have that information removed.

To protect yourself during this difficult time, you may wish to sign up for credit monitoring or other services to keep you one step ahead of identity thieves and unscrupulous debt collectors.

Sources:

  • http://blog.credit.com/2016/11/debt-after-death-10-things-you-need-to-know-162406/
  • https://www.nbcnews.com/better/money/debt-dying-five-things-surviving-family-need-know-n387341
  • https://money.usnews.com/money/personal-finance/articles/2016-06-02/will-your-heirs-have-to-pay-up-when-you-die-with-debt
  • https://www.creditcards.com/credit-card-news/credit-card-debt-death-1282.php

Credit Utilization: Master This Key Scoring Factor

Imagine two people borrowing the same amount of money from the same lender. One has a stellar credit utilization ratio. The other has a relatively poor number. Well, the first person could end up paying thousands of dollars less than the second individual due to a lower interest rate.

Your credit utilization rate accounts for 30 percent of your overall credit score. Given its significance, you should strive to make yours impressive.

Credit Utilization Rate

 

Calculating Credit Utilization

To figure out your credit utilization ratio, take your monthly balance and divide it by your credit limit. Let’s say you have a credit card with a $2,000 limit. Last month, you charged $200 on it. When you divide 200 by 2,000, you get 0.1. Thus, last month’s utilization ratio for that card is 10 percent.

Your credit reporting agency will give you a utilization score for each of your credit cards as well as other types of credit like home equity loans. It will also assign you an overall credit utilization score. The agency will compute that comprehensive number by adding all of your balances and all of your limits and then dividing the first sum by the second.

If your credit utilization score is too high, it’s harder to obtain loans with favorable terms. That’s because potential lenders will see you as someone who charges too much and who may, at some point, have trouble making loan payments.

Know Your (Credit) Limits

For a credit utilization score, the magic number is 30 percent. Try not to go over it. A strong utilization rate is between 10 and 20 percent, and an exceptional one is less than 10 percent.

To stay below the 30 percent mark, always monitor your credit card limits. If a credit card issuer lowers your limit, rely on that card less often. Conversely, if a credit card company raises your limit, you can feel free to use that card a little more frequently. Similarly, keep checking your balances online. If you’re coming close to 30 percent on one of your cards, don’t touch it again until next month.

Your credit card companies might have a program wherein they text you when you’ve hit a certain percentage of your limit. You could ask them to let you know when you’ve reached 20 percent or so.

Credit Card Carefulness

If your credit utilization score is currently higher than 30 percent, don’t worry too much. You can bring it down soon enough. Your first step is to carry more cash and keep more money in your checking account. That way, when you shop for groceries, clothing and other personal items, you can leave your plastic in your purse or wallet.

In addition, don’t shop on the Internet as much. Or, if you must buy products from digital stores, get in the habit of using a debit card rather than a credit card. Always search cyberspace for deals and discounts, too.

Higher Credit Lines

You might want to get in touch with one or more of your credit card issuers to apply for a limit increase. Just be aware that a credit card company must conduct a hard inquiry on anyone who makes such a request. A hard inquiry will probably lower your credit score a little.

Seeking a limit increase carries some risk. If your credit history isn’t in good shape, your credit card company could choose to reduce your limit instead, putting you in an even worse predicament.

On the other hand, if your credit report is exemplary, you could receive a credit limit increase without even asking for it. Either way, with a greater limit, you could spend the same amount of money, but your utilization rate would still go down.

In any event, approach a higher credit limit with caution. When you’re granted one, it’s natural to start spending more. And, unfortunately, it’s easy to go too far. In short order, you could be facing a higher credit utilization rate and mounting debts.

Shaky Strategies

Could you lower your utilization ratio by getting more credit cards and spreading out your spending? It’s possible, but you should resist that idea. A credit reporting agency might view your new credit cards in a negative light and lower your score accordingly. Not to mention, every time you apply for a credit card, the issuer will have to do a hard inquiry.

Plus, with extra credit cards, it becomes more likely that you’ll charge more than you can afford or forget to make a payment.

Give Yourself Some Credit

Finally, it’s a great idea to partner with a credentialed credit repair company. Its team members can study your credit history and find mistakes, questionable entries and other problems that are unfairly bringing your scores down, including your credit utilization ratio. Those pros can then contact your credit reporting agencies and convince them to fix the inaccuracies.

Knowing that your credit utilization number is going in the right direction should give you feelings of pride and security. Getting a low interest rate and advantageous conditions on your next loan or mortgage will feel even better.

Sources:

https://www.forbes.com/sites/financialfinesse/2016/12/04/how-to-improve-your-credit-score-quickly/#69802877499a

http://www.military.com/money/personal-finance/credit-debt-management/what-should-your-credit-utilization-be.html

http://money.cnn.com/2017/05/08/pf/credit-score-tips/index.html

https://money.usnews.com/money/personal-finance/articles/2012/07/24/tips-for-maximizing-your-credit-score-when-it-counts-most

https://www.nerdwallet.com/blog/finance/credit-utilization-improving-winning/

https://www.thebalance.com/understanding-credit-utilization-960451