Credit Repair - The Right Way to Pay Off Your Credit Card
Mapping out a realistic plan is essential if you want to finally retire all your credit card debt. The first crucial step is to work towards lowering the interest rate on your existing balances.
It Doesn't Hurt To Ask
It's often easy to negotiate a lower interest rate on your credit cards if you have good credit and a history of on time payments. Before you do, check at Bankrate.com to find out the best terms currently being offered by all the major credit card companies. Then call up your creditor and assertively ask for a lower rate, being sure to mention the specifics on the offers you found. Often, that's all it takes to secure a better interest rate.
Transfer If Your Credit Is Questionable
If your credit rating isn't good enough to use as a bargaining chip because you been late a few times, or the creditor won't budge, consider transferring your balances to your lowest interest rate card. Using more than about 30% of your limit on any single card can temporarily impact your credit score. But if it's only temporary, it will help you retire your debt faster. You will probably pay somewhere between 3-5% for the privilege, but if you carry a large balance, your savings will undoubtedly make it worth your while.
Tapping Home Equity
Although it's not as available as it once was, some people can use a home equity loan to pay off balances. Often, the interest rate is lower and you get a tax deduction as well. However, this is only a good option if you are certain you can pay it off as quickly and there's no chance of missed payments. Your house is used as collateral and you don't want to put it at risk. Don't bother pursuing this option unless you have good credit and you're not underwater on your mortgage.
Withdraw from Retirement Funds
Using retirement funds to pay off credit card debts should only be your last resort. The problem is the funds have to be paid back and if you are unable to, you face paying taxes and penalties on top of the balance. Plus, any tax benefits you might have earned will dissolve as well.
Debt Consolidation
Debt consolidation is another bad option as it increases your overall interest costs and fees, plus it extends the overall time it takes you to become debt free.
Credit Counseling
Working with a company that provides legitimate credit counseling and negotiates on your behalf to lower your interest rate should only be used if you have already fallen behind on your payments because of the negative effect it has on your credit. As mentioned, most people can effectively negotiate a lower credit card rate on their own, if the creditor is willing.
Do It Yourself Debt Management Strategies
Most people can implement their own strategic debt repayment plan without any outside help - provided they don't keep using their credit cards and use cash for all future purchases. A cash only policy has the added benefit of training you to live within your means. You can keep one card handy for emergencies if you must, provided you always pay it off each month.
Finally, don't close your accounts or lower your credit limits once you have paid them off unless you absolutely cannot control your spending. Closing accounts or lowering limits will have a negative effect on your credit score.
Questions and Answers
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