Two months ago, I I created when I moved to New York City at the same time that all my friends decided to get married. My credit card bill quickly escalated to $10,000.
Since then, I’ve spoken with a financial planner to help me create a plan to eliminate my debt. Here's what I learned:
Target One Credit Card at a Time
Instead of paying the minimum payment due on each credit card you own each month, focus on paying one card off, advises financial planner Vera Gibbons. Choosing the card with the lowest balance is a good place to start, she adds. While this card is being paid off, focus on paying the minimum payment on all of the other credit cards.
Transfer Your Balances (Carefully)
Moving your balance from a card with a high interest rate to a lower one could potentially save you hundreds of dollars a year. However, Gibbons advises that you should only make the move if you are confident that you can pay off your balance before a higher interest rate kicks back in.
“Be careful: you should transfer a balance only if you’re committed to paying off the debt within an introductory low-interest-rate window,” Gibbons says. (This window usually last 12 to 18 months.) Also, Gibbons warned that I should avoid at all costs making any purchases with the new card.
Find a Peer-to-Peer Lender
Gibbons also suggested that if I wasn't able to pay my enormous credit card bill in full, that I should consider borrowing money to pay off my card from a peer-to-peer lender, LendingClub.com or Prosper.com.
Sites like these can offer loans with lower rates than most credit cards.
Strapped for Cash? Make Two Minimum Payments Each Month
Since card issuers typically charge interest on a daily basis, Gerri Detweiler, the director of consumer education for Credit.com, advises making more frequent payments.
"The sooner you make a payment, the faster your average daily balance is reduced, which translates into fewer dollars in interest that you ultimately pay,” she explained.
Gibbons knows that many people are on a tight budget, especially this time of year, saying, “Go ahead and pay the minimum due each month, then try to make the same payment again two weeks later. Keep making a payment of the initial minimum-due amount twice a month until your debt is paid off.”
I’ve decided to dedicate the next year to paying $200 a week on my enormous credit card bill. Check back next month and find out how my financial cleanup is going.