It’s common practice these days to accumulate credit card debt. In fact, it has become so common that many movies and television shows portray the practice frequently. The good news is that you can take care of the credit card debt that you have accumulated by excessive spending and not making payments, despite the high interest rate.
Many people believe the best way to take care of the impending doom is by consolidation 0f the debt to another card with a lower interest rate. That’s a good idea and maybe a short-term fix, but it’s not a long-term solution.
Some even believe that using a 0% APR credit card (even though it is just a promotional and limited time offer) can save you from high interest rates. However, the problem isn’t the interest rate as much as it is spending a hundred dollars and paying just a buck.
Even with low interest rates, spending a lot and paying the minimum on your credit card payments can accumulate debts in a spectacular fashion. It grows exponentially, and you’ll understand why and how if you recall the math exercise you did on compound interest back in high school.
What happens is that when you owe someone an amount and there’s an interest rate involved, the interest rate isn’t applicable on the original amount but on the amount that accumulated after adding the previous interest. In simpler words, if you had to pay 10% interest on $100 for one month, in the second month, you’ll have to pay 10% on $110 and not $100. It’s really simple, and you can ask an 8th grader to explain compound interest to you.
Now let’s get to how you can get rid of the credit card debt. This is even trickier if you have more than one credit card to make payments on. You can try the debt avalanche or debt snowball method to get rid of the whole debt situation.
Debt avalanche is all about paying off the debts one by one, but you start a debt-avalanche with the debt that has the highest interest rate. This way you pay as minimum interest as possible. It’s very convenient, but don’t forget that you’ll have to pay minimum payments on all the other credit cards unless you want to file for bankruptcy.
Debt snowball is when you attack your credit card debts one by one, but you start with the debt with the smallest principal amount. It means that if you have a $100 debt and a $1000 debt, you pay off the $100 first and then focus on the bigger one. The simple logic behind this is that you’ll be able to pay off smaller debts much faster.
Look, it’s very simple. Paying off your credit card debt is all about cutting your expenses, saving up some extra money every month, and directing that money towards your credit card payments. Any way you choose to attack the debt is fine; what matters more is that you have to be committed to getting rid of the debt.