For anyone who can barely afford minimum payments, the future’s looking dim. Interest rates are projected to go up four times in 2018 and another four times in 2019, with no light at the end of this tunnel.
So far, we’ve had three rate-hikes already in 2018, with one more expected to come in December. “The average credit card interest rate is now 17.01 percent, according to CreditCards.com’s latest report. That’s up from 16.15 percent one year earlier and 15.22 percent two years ago.”
When interest rates go up, so do your credit card monthly payments and so does the cost of your debt, making it harder to get out of debt.
“Unfortunately, one shoe size doesn’t fit all, when it comes to credit card debt relief options”, explains Paul J Paquin, the CEO at Golden Financial Services – a NY debt relief company.
Paquin went on to say: “Some people have a high credit score and don’t want to ruin their credit by doing a financial hardship plan like debt settlement. Other folks have one specific goal, and that is to get out of debt fast and they don’t care about their credit. Some people are sick of overpaying in interest, and only want a reduced interest rate so that they can put more money towards retirement.
The good news is, there are multiple plans available to help everyone, no matter what your situation looks like today. What you want to do is pay off your credit card balances as quickly as you possibly can and you can then avoid 100% of interest. Once you become debt free, now it’s time to benefit from these increased interest rates. How can you benefit? That’s simple, just invest in the stock market and in a bank CD. You will then benefit from increased interest rates. Every time rates go up, so will the return on your savings.”
The following article will show you how to slash your interest rates and get out of debt fast, but before we dive into the best debt relief options for 2018 and 2019, let’s first look at the problem itself – how interest rates continue to skyrocket.
Every time the Federal Reserve increases its federal funds rate, shortly after the banks increase their credit card interest rates.
Within 48-hours of the Federal Reserve’s committee announcing their news of the federal funds rate increasing by another .25% in June, the following banks increased their prime lending rate. (I’ve linked to the official public notice released by each of the following banks, acknowledging their rates have gone up and illustrating by how much.)
What is the best way to pay off your credit card debt fast and avoid paying extra interest? Again, it all depends on your current financial situation and future goals, but now we will explore each option in detail and let you make the final decision on which route to take.
Can you afford to pay more than minimum payments?
Statistically, the debt snowball method has a higher success rate than the debt avalanche method, because you see faster results when using the debt snowball method.
If you have a $1,000 credit card debt that has a 10% interest rate, a $2,000 credit card debt with a 15% interest rate and a $3,000 credit card debt with a 29% interest rate, your focus will be to pay off that $1,000 balance first when using the debt snowball method. Continue paying minimum payments on the other two debts, while putting every extra dollar you can find towards clearing that smallest debt first.
After paying off that first smallest balance, now you have one less debt to pay each month and more cash to put towards paying off your next debt in line. Like a snowball rolling in the snow, you start to gain momentum and your ball of cash increases in size, making it easier to pay off debt.
As you increase your monthly cash-flow, use every dollar of these funds to pay towards paying off the next smallest debt in line. It’s that simple.
With the debt avalanche method, rather than focusing on attacking the account with the smallest balance first, instead, you focus on attacking the account with the highest interest rate first! In our example above, you would focus on paying off the $3,000 credit card debt that has the 29% interest rate first, while continuing minimum payments on the other two accounts.
The account with the highest interest rate may also be the account with the highest balance, and therefore to get that first debt paid off it could take you longer than any of your other debts. Over time, you are more likely to get frustrated when using the debt avalanche method because you are not seeing results quick enough. If you plan to use the debt avalanche method, just know frustration may come, so be ready to handle it and keep going!
Can’t afford minimum payments? Here are your best debt relief options:
If you can’t afford minimum monthly payments, you may want to consider one of the following three options.
- You can use a 0% balance transfer card, transferring all your high-interest credit card balances onto the 0% card. You’ll want to pay off the entire balance on this card during the introductory rate period. See, balance transfer cards only offer a 0% rate for a specific period, which is usually 6-18 months, and after that 18-month mark, the rate goes back up to its standard rate. Investigate these details before applying for a balance transfer card. This debt relief option is only a smart path to take if you’re confident that you can pay off the balance during the introductory period. Also, keep in mind, balance transfer cards come with up-front fees that range from 3%-5% of the amount of debt being transferred onto the card, so don’t forget to incorporate these fees into the equation.
- If you’re only one to two months behind on credit card payments and merely need a reduced interest rate, consumer credit counseling programs give you just that! Late fees and late payments can be waived and re-aged to show on your credit report as “current,” improving your credit. Clients pay one consolidated monthly amount to the consumer credit counseling company, and the company will disperse the funds to each creditor every month but at a reduced interest rate. A person’s monthly payment stays around the same as when paying minimum payments with consumer credit counseling, however, since the interest rates are reduced, they get out of debt faster and save money.
- Debt validation and debt settlement plans are financial hardship programs. These debt relief programs are for consumers who can’t afford to pay minimum payments, and who are on the urge of bankruptcy. These programs will lead to negative marks getting reported on credit reports and can leave a person with third-party debt collection accounts that hurt their credit score. Debt validation is the preferred solution for anyone with a financial hardship and whose debts are in third-party debt collection status. Each debt gets disputed with debt validation and in many cases, the debt collection companies can’t prove they are valid, making the debt “legally uncollectible”. A lawfully uncollectible debt is one that a person could walk away from without paying, and the debt can no longer legally be reported to the credit report agencies.
A recent article in Business Insider reported that “$5 billion in student loans may be dismissed because the lender lost the paperwork”.
Wesley Hendrickson, from Golden Financial Services, stated, “At least use debt validation to ensure that your creditors are abiding by the laws and maintaining the documentation that gives them the legal authority to even collect on the debt. Worst case scenario, the debt gets validated, and you can then turn to debt settlement to get it settled and paid.”
Consumers can call toll-free at 866-376-9846 for that free consultation or visit Golden Financial Services online at https://GoldenFS.org.
Sources:
https://www.federalreserve.gov/monetarypolicy/fomcminutes20180613.htm