If you are wondering how you can get out of your credit card debt, there is one thing that is for certain: stop sticking to the minimum payments. This payment requirement is one of the traps that will get you in debt for a very long time. Getting out of debt will require a lot more than just scraping the surface of your debts – which is what you are accomplishing with the minimum payments.
The thing about credit card debt is that the high interest rate and the finance charges will keep your debt balance high. You need to make significant contributions because you will be old and gray before you complete your card payments.
Here’s an example of what you are up against. If you have a credit card debt worth $10,000 with an interest of 20%, your minimum payment will have to be around $400 every month. If you stick to that, it will take you more than 14 years or 172 months to completely pay off what you owe. Throughout that period, you will be paying off $6,989 worth of interest. Would you really want to waste that amount of money on your creditors? If not, then you need to look for another alternative to pay off your debts.
If you are thinking about your limited income and the fact that you can only afford the minimum payment, then you should not give up hope yet. There is a debt relief option that targets to lower your payments without necessarily spending forever to pay off your debt. You may be hesitant to lower your monthly payment because the minimum in itself will take you more than a decade to complete payments, what more if you pay below that?
Here’s how it works. The debt relief option is known as debt consolidation loans. You apply for a loan that is big enough to pay all your credit card debts. Personal loans, especially secured loans have a low interest rate. They are oftentimes much lower than credit cards that average at 18%.
If you search for a personal loan calculator online and calculate the same $10,000 debt and an estimate of 10% interest rate, the software will indicate that you only pay $212 a month. If you stretch it over 60 months or 5 years, you only pay off more than $2,700 worth of interest. Of course, all of these are just estimates and every lending institution will have varying rates. However, you can see how it is a better deal compared to paying off through the minimum technique alone. If you can afford a higher contribution every month, you can cut down the interest rate, payment term and the interest amount that you will end up paying for.
The key is to get a loan that has a low interest rate. This can be done by having a good credit score. If you haven’t missed any payments yet, you may even get an interest that is as low as 6.5%. Another way to score that low interest rate is by putting up a collateral that will make you qualified for a secured loan. If you can stick to the payments, you will not be endangering your asset from being taken by the lender.