May 02, 2019
A large national survey by the Transamerica Center for Retirement Studies found that saving for retirement is not our top priority. Paying off debt is the most pressing financial goal, cited by 31% of survey participants, compared to only 21% who said saving for retirement was their top goal.
And in the realm of debt, unpaid credit card balances is top of mind, mentioned by more than four in 10 people. That’s likely because card balances are on the rise. The $870 billion in credit card debt at the beginning of this year now matches where it was leading into the financial crisis.
And those bills are likely more expensive. Five years ago when there was a mere $660 billion in unpaid credit card debt, the average interest rate was 13%. Today, the average is 17%. There is no way you can feel financially secure if you’re paying so much in interest.
Here’s how to get serious about paying off your credit card debt as fast as possible, and at the least cost.
Take pleasure in saving. This is the single most important piece of advice I can give you. Until you can feel more pleasure from saving than you get from spending, you are going to be tempted to spend money you don’t have. I know for some of you credit card debt happened because you had an unexpected emergency, such as a doctor’s bill. But I ask all of you to be honest and look through the last three months of credit card statements and circle every expense that wasn’t absolutely necessary.
That is your truth. I am not interested in shame or blame. I am interested in helping you shift your thinking and your actions to stop making those unnecessary expenses that end up costing you so much more in interest.
When you are shopping in a store, apply the two-second check to everything you pick up. In those two seconds ask yourself “Is this really necessary, given my big goal of paying off my credit card bills?” That moment of hesitation and focus will help you make the powerful choice.
When you are shopping online, adopt a basket strategy. No immediate one-click purchases. Everything goes into your shopping basket and stays there for 24 hours. Yep, 24 hours. If when you return the next day you can honestly say you need those items, okay. I think you will be surprised how often you find you no longer need to make the purchase.
Ask for a lower interest rate. A survey by CompareCards.com found that 8 in 10 people who called up their card issuer and asked for a rate reduction got one. And the average decrease was six percentage points. But you have to ask. Politely. That call costs you nothing and can save you plenty.
Consider a balance transfer. If your FICO credit score is at least 680 (and preferably above 700), you may be able to qualify for a deal where you transfer your balance to a new card that will then charge you zero interest for 15 months or longer. There is typically a fee of 3 percent or so of the amount you transfer. But that’s going to be a good deal if you are serious about paying off your debt. Having a year or more where you owe no interest and all your payments can go toward paying off the balance is worth the 3% fee. But you are to only do this if you are serious about getting out of credit card debt. Paying the transfer fee and then not paying off the debt during your “free” time, means you will just end up paying high interest again when the intro offer expires. Add that to the transfer fee and you will come out a loser.
Focus on the card with the highest rate first. If you can’t qualify for a zero interest transfer deal, that’s okay. You just need to be smart how you proceed. I want you to pay the minimum due on every card, on time. And then add an extra payment on the card that charges you the highest interest rate. Push yourself to make the biggest possible extra payment. When that card is paid off, use all the money you were paying to the first card and apply it to the second. Keep this up and I think you will be amazed how great it feels to see your balances falling.