Pay Off Credit Card Debt To Beat InflationMoney Top of the List
Inflation isn’t the only thing rising — so is credit card debt and interest rates. In fact, the average credit card rate is now almost 18-percent — that’s the highest we’ve seen in decades! And while putting things on a card when money is tight seems like an okay solution at the time, it’s actually costing you a lot more in the long run. So we’re learning how you can start paying down credit card debt now and beat inflation with Shazi Virji, GM of Credit Services at Credit Sesame.
The first tip… choose your payoff method.
The two most popular are called the debt snowball method and the debt avalanche method — which you use depends on your finances and motivation. With each, you pay the minimum balance on all your cards but one.
With the snowball method, you focus any extra cash you have on the smallest debt first; then you start rolling through other debt like a snowball. This method can provide the spark and momentum some people need in order to not be so scared of the large balance that awaits them at the end.
The avalanche method is a bit different because that’s about organizing your debt from highest to lowest interest rate. Regardless of the balance, with this method you’ll tackle the highest interest rate first — but this takes a little longer until you finally see it all tumble down. Shazia believes the avalanche method is ultimately the best way to save on interest — and in this environment, interest is your biggest enemy.
Next — balance transfer
Balance transfer is about taking your highest interest debt and transferring it to a new card with zero-percent APR for a fixed amount of time. If, for example, that time period is 21 months, that means for 21 months, you won’t pay interest on your balance. Instead, you can take that saved money and use it to pay down your balance faster.
Next — ignore the perks
While it’s nice to have a card that offers rewards, those rewards are largely worthless. And to earn rewards you often have to spend anywhere from a few hundred to a few thousand in the first few months. Given the choice between rewards and less debt… choose less debt!
And finally — don’t avoid the card.
It may seem tempting to just completely switch to cash — after all, that will prevent you from spending beyond your means. On the other hand, if you get a debt repayment plan going and you’re getting to the place where you can pay off what you spend, you’ll want to keep building you credit score. Plus, credit cards are a good alternative to cash because they provide that additional purchase protection as well.