Being in debt can cause a great deal of stress and may lead to feeling like you are losing control of your financial future. We have all read advice that tells us to keep our monthly payments low by saving money on food, cutting living expenses, or stopping those frequent trips to Starbucks, which is merely common sense. Instead of these popular methods of paying off credit card debt, you need a solid plan which will not only help you lower your monthly payments, but also reduce the amount of interest you are repaying.
High Cost of Monthly Credit Card Payments
Credit card debt in the United States has reached very high levels. Recently, the Federal Reserve estimated more than $1.4 trillion in credit card debt is owed by American consumers. When considering average minimum credit card interest rates, even for those with great credit, is slightly over 15 percent, it is easy to see how credit card debt can quickly spiral out of control. Those consumers who pay only monthly minimum payments are likely paying $300 or more annually in interest if they are carrying a balance as low as $2,000, assuming a 15 percent interest rate. Additionally, your credit score will not increase because you are not changing the amount of credit you are utilizing.
Exploring Debt Repayment Options
Consumers who are facing high credit card debt have some basic options which they can explore, including paying off credit cards from their savings and using some of the methods typical debt writers suggest, including:
- Avalanche Method – this method suggests you make minimum payments on all credit cards except those with the largest interest rate. The card with the highest interest rate should be paid as quickly as possible by making larger than minimum payments. Once the first card is paid off, you move onto the next highest interest rate card, etc.
- Snowball Method – this debt repayment method may seem counter-intuitive. Using this method, a consumer pays off the credit card with the lowest payment first and then continues to put the funds they save towards the card with the next lowest balance until the cards are paid off.
These are not necessarily the best methods for paying off your debt, and they are certainly time consuming. One of the most commonly overlooked methods for paying off your credit card debt is to consider debt consolidation. This method helps you manage your money better, keep your credit card interest low, and helps you see immediate results.
Debt Consolidation Loans
There are a couple of debt consolidation methods. The first is to take a debt consolidation loan and simply pay off all your credit cards at the same time. The other option is to consider taking the equity in your home in cash and paying credit cards off using the cash. This method is especially effective for a couple of different reasons.
Consider this: Home loan interest rates are currently very low. This means you could be saving hundreds of dollars annually in interest by refinancing your home and paying off your credit cards. Additionally, many find they can deduct mortgage interest rates on their taxes, which is different than credit card interest which is not deductible.
This may be the perfect time for you to consider refinancing your mortgage, particularly if your home has increased in value since you obtained your mortgage. Remember, as you have made payments on your mortgage, you have built equity in your home. Additionally, if your home has increased in value, you may have more equity than you originally thought.
If you are concerned about your credit card debt, or you are paying only minimum monthly payments, contact Pacific Mortgage Group today and talk to a loan specialist about a home refinance loan. Pay off your credit card debt starting today and save hundreds of dollars in interest payments.