So you decided it’s time to pay down your credit card debt… Now what?
Choosing the best and fastest course to financial freedom can be difficult. Different repayment options work better for different people. While we can’t tell you what works best for your particular financial situation, we can recommend what not to do. So when making your game plan, remember to avoid these three debt repayment misconceptions:
1. Debt consolidation companies will always save you money
While it’s true that certain companies can help you negotiate with your creditors and reduce your overall balance, they often charge expensive fees for their work. In the end, you may wind up paying more than you already owe.
If you’re curious about reducing your debt, contact a trusted nonprofit like BALANCE. Our certified financial coaches can examine what you owe and figure out your best repayment strategy.
2. Transfer your credit card balance to a new, low-interest card
Transferring your current high-interest credit card balance to a lower-rate card can save you money—technically. However, it’s not as easy as it sounds. Often cards that advertise balance transfers come with attractive introductory rates followed by steep interest hikes after a few months. Plus, some cards charge a pricey transfer fee.
If you want to use a balance transfer as a debt-busting strategy, make sure you read the fine print on your new card, and pay off the balance within the promotional period.
3. Spread repayment evenly across all lines of credit
When faced with multiple credit card balances, it’s tempting to just pay them off evenly. Seems like the easiest choice, right? The problem with this strategy is that each card has its own interest rate, and the higher-rate cards are costing you more. So rather than paying them equally each month, target the most expensive card by increasing your payments. Once it’s paid off, you can focus on the next most-expensive card, and so on.