More powerful methods to get you out of your credit card debts
I wrote a post earlier on Powerful methods to get you out of your credit card debt.
In that post, I suggested on the following methods:
- Snowball effect - pay off your credit card with the highest interest charge first and then move on to the credit card with the 2nd highest interest rate and so on. And your monthly credit card payment should never be less than the previous month’s.
- Get a personal loan to pay off your credit card - combine all your credit card debts and settle it with one personal loan.
- Talk to the bank - Discuss and negotiate with the bank on how you can pay off your credit card debts. Banks can sometimes give some good options.
- Get professional help - Get professional and qualified advice from a Financial Advisor. They can help you out to prepare a plan and budget to pay off your debts
From what I’ve read and discussions with other people, I can further expand the list.
Powerful Method No 5: Balance Transfers
Almost all credit card programs from banks have balance transfers. What is balance transfers? It allows you to move your credit card debt from your existing bank to a new bank. This move is called balance transfer.
The new bank will give a much lower interest charge on the balance transfer. Depending on the program, the lower interest charge can only be for a fixed period (say 6 months), or, it can be for all times.
What’s the advantage of balance transfer? Lower interest charge = lower interest to pay for your debt. So you can end up paying less and you can settle off your debt faster.
One important thing to do - when you do a balance transfer - you should terminate your card with the existing bank. If not, you’ll end up having two credit cards which can lead to more debts later.
Powerful Method No 6: Refinance your property to free up some cash
Now, this is very tricky. It can also be dangerous because if you don’t do it properly, you can end up losing your home.
What is it about? If you already have a home, or you have been paying off your home loan for quite a while, you may have an equity from your home.
Equity here means that the current market value of your home is higher than your outstanding loan.
For example, if the current market value of your home is 200 thousand and your outstanding loan is 100 thousand, then you have an equity of 100 thousand from your home.
How do you use this equity? Well, you can sell your house to get it. (But you won’t have a house anymore!) Or, you can refinance your house (meaning take an additional loan) and you can cash-out the equity. Depending on banks, you can refinance up to 90% of your equity.
Remember, it is still a loan, so you still need to pay it out in the future.
But why go through all this hassle? Well, the interest charge on a refinance loan from your home is lower than your credit card interest charges and is also lower than any personal loan interest charge.
So in terms of settling your credit card debts, this approach is the most efficient as the interest charge is the lowest.
But, you must be very careful and very discipline at paying back the loan. As if you don’t pay, you can lose your home.
So, although this method is the most efficient, I don’t recommend this to everyone. Only suitable for the savvy ones.
To summarize. two more methods to reduce your credit card debts - through balance transfer and through home equity.
All in all, there’s 6 methods for you to set on. All good and time-tested. So it’s not a guinea pig test here. But I have to stress again, the most important things are planning, discipline and patience.
But you’ve read through this far. So I guess you have all those three things to get you out of your credit card debts. Please read the disclaimer too.
What would you add?
I know many readers have also experienced this in one form or another. Which method works for you? Any other methods you want to suggest?
All the best!
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Hello Nash,
I like the no. 6 advise regarding re-finance your property to pay credit card debts. Now I got to know that the housing loan interest % is much lower than credit cards or other loan interest rate %.
Good idea indeed. Will take that into consideration.
Thanks!!
Hi Natisha,
I’m glad it’s working for you! Way to go!
But please check all the fees when you want to refinance your property. The legal fees and stamp duties can be quite expensive too. You need to consider that before making the refinance.
And the most important point to consider is: Are you ok with the monthly payments?
any updates coming ?
I should email you about it.
Earning a little extra on the side and using those funds to pay off debt; i.e renting out a spare room or garage space, selling your unwanted items or starting a side business.
That’s the spirit Razwana.
When you’re out of the debt cycle, things will get better.
All the best,
Nash