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5 Things That Smart People Do Every Day to Reduce Their Credit Card Debt

There is no magic trick or special skill that will make your credit card debt disappear overnight. However, with proper planning and a bit of patience, you can take steps to reduce it

1. Avoid Minimum At All Costs

It’s easy to be lured into the idea of a minimum payment. “Either pay $3,000 now, or pay the minimum and you won’t have to worry about it for another month!” Crazy as that sounds, thousands of people get lured into it every year.

There’s a major flaw with it though: every payment you make goes toward the interest first. The principal only goes down after the capitalized interest reaches $0. That means, if your principal and interest rates are high enough, paying the minimum might not pay off the capitalized interest at all, which means the principal will never go down. You’ll find your debt increasing at staggering speeds. If you want that principal to go down, you must pay more than the minimum.

2. Eat the Biggest Frog First

If you have credit card debt, odds are, it’s spread out among multiple cards, which probably have different interest rates. If you want to pay less in the long run, it’s best to pay off the card with the highest interest rates. As Mark Twain once said: “If your job is to eat two frogs, eat the biggest one first.” It means, get the ugly task out of the way early, and everything else will seem much easier. Eliminate the card with the highest interest rate, even if it means paying minimum on the others. Once you’re done, the remaining cards will feel easier.

3. Ask Nicely

If you’ve been making regular payments, and you have good credit, call your creditor. You may be able to get a little bit shaved off from your interest rate. Alternately, if you’ve been offered a better interest rate from a competitor, let them know; they might match it. It could mean hundreds saved annually.

4. Put it Somewhere Else

In some circumstances, it can be beneficial to transfer your balance to a card with a lower interest rate. Be careful though; these low interest rates are usually only introductory rates, and only last 12 to 18 months, depending on the card. After that, if you haven’t paid it off yet, you could end up with a higher interest rate than you had before.

Also, most cards have a balance transfer fee of about 3-4% of the total amount transferred. For example, if you’re transferring $5,000, you’ll be paying an extra $200 if it’s a 4% fee. Take a look at how much you owe, and the difference in interest rates, and decide if the fee is worth it or not.

5. A Different Kind of Transfer

Consider a peer-to-peer loan to pay it off. If you have a good credit score and a stable job, you can get new loans with fixed interest rates that are much lower than the current ones. You can get loans up to $25,000, and potentially save hundreds on the debt you have now.

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