7 Ways To Get Out Of Your Credit Card Debt
Credit card debt is toxic.
It grows gradually until it’s too big to tackle, leaving you submerged in a world of problems.
Luckily, you landed on this page by BST Credit.
We aim to help our customers by offering the best loan products and informative blog articles.
Let’s discuss the basics of credit card debt, and we’ll teach you how to get out of it. It is never good to delay credit card repayments. The techniques below will put you into the right mindset and offer all the necessary tools to start working towards your debt-free life today.
What Is Credit Card Debt, & Why Is It Bad?
Credit card debt is that every-growing balance that you can’t seem to repay no matter what you do. So, you just reimburse the interest or try to ignore it altogether.
In the end, you only manage to repay the charged interest and not the actual credit amount.
This prevents you from building your financial portfolio, starting on your investment and creating your own emergency fund.
Every time you do that, the debt grows more massive. Late payment charges and 25%/year interest melt into your overdue balance monthly to create a mammoth debt that you can no longer tackle.
Credit card debt is bad because:
- It snowballs to an impossible-to repay sum
- It lowers your credit rating
- It prevents you from taking up other loans, such as a home or car loan
- It basically restricts the quality of your life. You will feel a huge amount of stress and fear.
What Is The Monthly Interest Rate On Credit Cards?
The monthly interest rate on credit cards is about 2%, depending on the bank. That brings us to an average of around 25% per annum, although some credit facilities can go as low as 18%/year.
Here is an example for you to consider.
Let’s say that you have a $5,000 debt on your credit card. If you fail to repay punctually, the repayment amount will easily be at least $6,250. This does not even include late payment charges, hidden fees and more.
And you’ve probably seen the ads about zero-interest credit cards.
This alternative is excellent, but you have to stick to purchases you can afford to reimburse within a year. After this period, the interest rate grows to the regular 25%/year, so you’ll deal with snowballing debt again.
To the surprise of many, the interest rate for personal loans is lower than that of credit card loans. Read more about it here.
How Do Credit Card Interest Rates Work?
Credit card interest rates multiply the existing balance in your account. That way, your debt grows by a pre-established rate.
So let’s say that your credit card has a 25% interest rate per month. Divide that number by 365, and you get 0.068%. That’s your daily interest rate.
Each day that your balance goes unpaid, it grows by 0.068%. For a $1,000 outstanding balance on Day 1, the interest for that day is $0.68. That brings your balance to a total of $1,000.68 on Day 2, $1001.36 on Day 3 and so forth.
After one 30-day month, your balance would be $1,020.83.
$21 extra doesn’t seem like much compared to that initial $1,000, right?
But take this into account:
- Most issuers apply significant late payment charges that enhance your debt.
- Because $21 is a meagre amount, you’re tempted to ignore your overdue balance for longer.
- You’re also tempted to charge more purchases on your credit card.
The cost of debt is extremely high. You could be using this money for other purposes such as growing your investments or career.
7 Ways To Get Out Of Credit Card Debt
Now that you understand how dangerous credit card debt is, let’s see how you can get out of a credit card debt:
1. Start By Making A Budget
Learn to make a budget that fits your needs. You should only purchase your needs, not your wants.
Buy food and daily necessities, and not that latest handbag or tech gadget.
There are numerous online resources and counselling agencies that will help you do that.
Basically, you’ll learn how to:
- Increase your earnings in a way that works for you personally
- Lower your spending by prioritising your needs
The result is that your earnings cover all your expenses, including your debt.
2. Debt Snowball Method
The debt snowball method entails paying the debt with the smallest balance first to gain some momentum.
The hardest part is always at the start, but once you begin, we promise that it gets easier.
Thus, you’re going to make the minimum required payment to all your credit cards monthly. Any extra money you have goes directly into the smallest balance loan until you’ve repaid it fully.
Move on to the second-smallest loan next.
Here’s the reasoning:
- Each time you tick off a debt, you’re saving that debt’s monthly instalment. That way, you can repay the other debts faster, even if they’re larger.
- Starting with the smallest debt builds enough confidence so that you can stick to your plan.
3. Debt Avalanche Method
This strategy starts by focusing on the highest-interest credit card first. While making minimum required payments to all the other credit cards, put all the extra money into paying that card’s balance first.
After you’ve finished paying for it, move on to the next high-interest card.
The reasoning behind this method is that interest rates grow your overdue balance. Obviously, the largest interest grows its corresponding debt the most.
Here’s the problem:
You might get discouraged if your largest-interest loan is also your largest-balance loan. That means you’ll have to work harder and for longer to wipe that massive amount off your list.
Conversely, the debt snowball method gives you a quick win that motivates you to continue towards your debt-free life.
Remember! Don’t use your credit card for additional purchases while you’re working to repay existing debt.
4. Debt Consolidation
When trying to get out of credit card debt, the biggest problem is the high-interest rates that keep accumulating. If you have multiple open credit facilities, the interest that keeps pilling on can make your endeavours seem futile.
Debt consolidation can help you reduce that interest. Here’s how:
- Take a debt consolidation loan. This type of loan merges all your debts into a single one with a lower interest rate. Besides, you won’t have to deal with multiple deadlines over a month that might add to the confusion. Another advantage is that debt consolidation loans have longer tenures and smaller corresponding instalments for budget-challenged people.
- Catch a 0% balance transfer promotion to a new issuer. That means you’ll move your existing balance to a new card with 0% interest so that you can reimburse it faster.
Debt consolidation loans usually have a lower interest rate. If you have more questions about it, you can give us a call at +65 6299 1782.
5. Negotiate New Terms
Negotiating directly with your credit card issuer can seem like a long shot, but you’d be surprised how well that can work. Here’s why:
Banks want to mitigate their risks. They prefer to get less money than no money or much less money. Let’s explain:
- Banks will get no money if your balance grows so much that you can’t reimburse anything, even if they take legal action.
- Banks will get much less money if you opt for debt consolidation that repays your balance fully today, without any added interest in the future.
So, explain to your bank why lowering your interest would be a win for them too. Make sure to show them your plan of repaying your debt to increase your negotiation’s success.
HELOCs are home equity loans. Basically, you’ll use your house as collateral to get a massive loan and reimburse your debt.
This solution is best if you have several high-interest debts, especially considering that a home equity loan’s interests are about 1.4-1.8%/ year.
On the downside, the bank can take your home if you can’t repay your HELOC, and you’ll also have to cover massive closing costs.
7. Credit Counseling
Credit Counselling Singapore is an excellent NGO that will take you through all the necessary steps to get out of credit card debt. The best part of their service is their personalised help.
That means whatever they teach you, from how to plan your budget to specific debt-tackling methods, starts from your current situation. Besides, CCS and other counselling agencies on the island can negotiate with your issuer on your behalf to find a win-win solution.
BST Credit Offers Affordable Loan Plans That Can Help You
If you are caught in a financial pinch and need money urgently, feel free to reach out to us at BST Credit!
We are a legal and licensed moneylender that aims to help our customers weather the storm.
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