According to the Federal Reserve, credit card debt in the U.S. was $1.07 trillion in May 2019. If you are carrying a credit card balance from month to month, you are most likely paying interest at rates as high as the upper teens or above. Maybe it’s time to get serious about vanquishing that credit card debt. Here are four potential ways to go about it.
1. Pay More Than the Minimum
If you typically pay the minimum monthly balance on a card, you will incur heavy interest charges by the time you pay off the card. Let’s say you charge $3,000 on a card with 18% interest. If you make a monthly payment of $125 versus $75, you’ll pay off the balance in less than half the time and pay $869 less in interest. This assumes you start with a zero balance on the card and charge no more than the original $3,000.
2. Negotiate a Lower Rate
Ask your credit card company to reduce your interest rate. Companies don’t want to lose customers to the competition.
3. Do a Balance Transfer
Transferring a balance to a different card or a personal loan might make sense if you’ll pay lower interest on the new card or loan. Just beware of a low “teaser” rate that’s set to increase after an introductory period. Plan to pay off your transferred balance before that period ends. Also, balance transfers often involve an upfront fee of 3% to 5% of the amount transferred.
You can use a home equity loan or home equity line of credit (HELOC) to pay off a card. Interest on home equity debt tends to be comparatively low, but under the Tax Cuts and Jobs Act, interest on home equity money used for purposes other than to renovate your home is not tax-deductible. Also, a home equity loan or HELOC uses your home as collateral, which could place your home at risk in the event you default on the debt.
4. Use Savings
If you’re paying higher interest on debt than you’re earning on short-term savings, consider using at least some savings to bring down the debt. Just be sure to keep enough emergency savings to cover at least three to six months of basic living expenses.
Actively-contributing members of the Annuity Plan can speak with an EY financial planner through the Ernst & Young Financial Planner Line® (EYFPL) at no cost to you. Call EYFPL with your questions at 1.877.927.1047, Monday through Friday from 9:00 a.m. to 8:00 p.m. (ET). You can also log in to the Ernst & Young Financial Planning Center® at pbucc.eyfpc.com for more help.
This article is used with permission of Ernst & Young LLP.