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Why You Should Settle Quickly
A high credit card balance can make you financially insecure. Not only are you at risk of having a poor credit standing, but a significant part of your earnings go to pay interest charges that are best avoided. The only way to prevent these costs from accumulating is to pay off your credit card. How long will it take to you to do so? The answer to this question depends on other factors. How did you accumulate your credit card balance? Do you intend to charge more items to your card in the future? How do you hope to pay it off? Learn some methods on how to settle credit card debt fast.
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How Your Credit Card Balance Can Increase
Your credit card balance can accumulate in two ways. First, your balance can increase if you have impulsively charged a lot of items to your card. Next, if you cannot settle the full balance outstanding by the bill payment date, then your billing statement for the next period will include interest on the unpaid balance. If you delay in making the minimum payment, late payment fees can further increase your balance Study your billing statement and cardholder agreement. Clarify with your card issuer any fee, interest or other charge that is not clear to you.
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Ways of Paying Down Your Balance
The most important step in reducing your credit card debt is to decide the best way to settle it. In order for your account to be considered current, your card company expects you to pay at least the minimum payment. However, this is not a cost effective way to settle your credit card balance as you end up paying a lot of interest. To determine how long it will take to pay off your credit card, you need to know your current balance, annual percentage rate (APR), and what rate your credit card applies to calculate your minimum payment.
There are many online calculators that show how long it will take to pay off your credit card if you pay only the minimum payment. They also let you see how soon you can settle your balance if you pay a fixed amount higher than your minimum payment. Some calculators also allow you to input any additional charges that you intend to make to compute the length of time to pay off your credit card bill. Use this calculator at www.smartmoney.com to compare different payment options. You can also use the NPER function in Excel to calculate how long it will take to pay off your card. Remember to use a minus sign for the payment that you hope to make when using this function, as this is a cash outflow for you.
For instance, if your credit card balance is $1000, and the minimum rate is calculated based on 2percent of the outstanding balance, then the minimum payment amounts to $20. Provided you do not charge any additional items to your card, and your APR is 15 percent, it will take 79 months (six years and seven months) for you to settle your credit card balance, if you pay only the minimum payment. In the process, you would pay total interest charges of $586. Alternatively, if you pay $30 each month, then you can settle your credit card balance in 44 months (three years and eight months), while paying interest charges of $305. Not only can you settle your credit card faster, but you save interest charges of $281.
Now that you understand the benefit of making a higher payment on your credit card, commit to paying down your credit card balance with a monthly payment in excess of your minimum payment. The easiest way to stay on track is to arrange a monthly automatic fixed payment transfer from your bank account to your credit card account. If you find that you can make payments higher than this in some months, do this so that your balance goes down even faster.
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Other Ways of Paying Off Your Credit Card
You can also pursue other options to pay off your credit card balance. Call your credit card company, and try to negotiate a lower interest rate. Many people have succeeded in doing just that. If you have different types and amounts of debt with various creditors and payment dates, check on whether consolidating them in to one loan is cost effective.
Whichever route you take, remember that you need to adopt a disciplined approach to handling credit card debt. Settling it early will save you money. Your credit score improves, and you enjoy peace of mind.