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Cutting Credit Card Costs
What are the APRs charged by the credit cards in your wallet?
If you are paying more than 12% interest on any of them, you are
probably paying too much. The prime rate is currently in the
single digits, so credit card companies that charge above 13% APR
are overcharging. If you have good credit, you should be able to
find a credit card with an APR below 12%. Shop around and get the
rate you deserve. Do not be afraid of asking for a lower rate on
your current credit card if you think you deserve it. A lower
interest rate can cut your credit card costs significantly.
Another action you can take to save money is transferring your
outstanding balances to a credit card with a low APR. Many credit
card companies offer low APRs on balance transfers, and taking
advantage of those offers can save you a lot of money. You need
to make sure, however, that the special balance transfer rate is
not temporary. Otherwise, you will need to transfer your balance
again once the offer expires. You also need to find out if either
credit card charges a fee for transferring a balance. The fee
might be higher than the money you will save from the lower
APR.
Some credit card companies issue fees simply for holding their
credit card, even if you do not have an outstanding balance
(these are called inactivity fees). Close any accounts that
currently charge you an annual fee. There are plenty of credit
card companies out there that offer their services for free. Make
sure to allow about one month between each credit card
cancellation in order to prevent your credit score from dropping.
Ask the credit card customer service employee to note on your
credit report that the account was closed per customer's
request.
You also might want to consider paying your credit card debt
with part of your savings. These days, banks only reward your
savings account with less than or up to 1.5%, while your credit
card charges you up to 21% in interest, so you will actually save
more money by using your savings to pay your credit card than by
leaving it in the savings account. If this is an option you are
willing to consider, make certain that you do not drain your
savings completely. It is recommended to maintain at least 3 to 6
months of income in your savings account in case of an
emergency.
Now that you are aware of which of your credit cards carry the
highest interest rates, pay the most you can afford to those
cards and pay a bit more than the minimum payment on ones that
carry the lowest interest rates. Once you finish paying off the
card with the highest interest rate, move on to the next highest,
and so on until you pay off all your credit cards. This strategy
will assist you in getting rid of the credit cards with the
highest interest rates first, and leave you to handle the ones
that do not charge you as much. You should discipline yourself to
always pay more than the minimum required payment on any credit
card. This can significantly reduce the time you spend in debt
and the money you will pay in interest charges.
Remember to always manage your credit card spending and do not
over spend. It could end up costing you much more than you
bargained for.
The subject matter contained in our educational publications
is for informational purposes only. We suggest that you consult
your financial or other advisors when planning for your specific
needs or requirements.
Ana Ribero is a Certified Financial Counselor for Debt
Management Credit Counseling Corp., a 501(c)(3) not-for-profit
credit counseling organization.
MORE RESOURCES:
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