Unlocking Opportunities for Your Home Buying Journey
Welcome to the last blog of the series: Mastering Credit Card Usage! Today we will discuss bad credit and credit card debt. If you find yourself living paycheck to paycheck and struggling to improve your financial situation, there are still strategies you can employ to tackle your credit card debt. When you have a bad credit score and limited funds, obtaining a loan or qualifying for a no-interest credit card may not be possible. However, let's explore what steps you can take to address this situation.
Disclaimer:
Please keep in mind that I am not a financial advisor, I am not a lawyer, and I am not your real estate agent. The information you will see below are examples from my personal and professional experience. I hope these examples provide you with ideas on how to take action in your own life and serve as conversation starters with the professionals who are currently or will be assisting you in reaching your goals.
Mastering Credit Card Usage: Part 4
Paying off Credit Card Debt with Bad Credit and No disposable income:
Effective Strategies
The first crucial step is to stop using your credit card and adjust your lifestyle to live within your means. This shift will help you create a budget and develop new daily habits that align with your financial reality. Adjusting your habits is the foundation of this strategy.
Evaluate Your Credit Cards: An In-Depth Guide
Step 1: Examine APRs
Start by assessing the Annual Percentage Rate (APR) on all your credit cards. Locate this information on your credit card statements or directly contact your credit card companies for accurate percentages.
Step 2: Organize by Interest Rates
Once you have the APRs, create a list of your credit cards, arranging them from the highest to the lowest interest rates. This organization will provide a clear overview of your debt landscape.
Step 3: Negotiate Lower Interest Rates
Initiate a conversation with your credit card companies to explore the possibility of lowering your interest rates. In a Wendy De La Rosa's study, indicating that a substantial 50% of individuals successfully reduced their rates through negotiation.
Step 4: Align Due Dates with Paychecks
While engaging with your credit card companies, request a due date adjustment to coincide with your paycheck schedule. This synchronization ensures a more consistent and manageable payment routine.
Step 5: Divide Minimum Payments and Plan Weekly Payments
Determine the minimum payment for each card and break it down into four equal parts. For instance, if your credit cards have minimum payments of $25, $259, and $78, divide them by four to get $6.25, $64.75, and $19.50, respectively. Establish a payment schedule for weekly payments, aiming for $90.50 in your bank account each week to cover these obligations. This approach ensures a structured and effective strategy for managing credit card payments.
Illustrating the Strategy (example to evaluating your credit cards):
Step 1: Understanding the Scenario
Consider a credit card with:
Total balance: $655.45
Interest rate: 28%
Minimum payment: $25
Step 2: Monthly Minimum Payment Scenario
If you make the minimum payment of $25 once a month, the outcome is as follows:
Total interest: $307.16
Grand total paid: $962.61
Step 3: Dividing Payments into Four Equal Installments
Alternatively, if you divide the $25 payment into four equal parts and make payments of $6.25 weekly, the results improve significantly:
Total interest: $282.29
Grand total paid: $937.74
This approach results in a savings of $24.87 in interest and allows you to pay off the card three months earlier.
Additional Insights:
Credit cards operate on compound interest, calculated daily.
Dividing payments into four each month reduces weekly interest accrual.
Paying off one credit card provides extra income for other debts.
Improved credit opens up better financial opportunities, enabling strategic debt repayment and enhancing credit scores. Explore additional strategies as your credit improves, as discussed in this blog series.
Additional Tips for Improvement:
While this approach may take time, improving your credit opens doors to enhanced opportunities. Allocate any extra funds to your credit card payments to boost your credit score. As your score rises, explore additional strategies in this series for effective credit card repayment and overall credit score enhancement.
Click here to see an illustration of making minimum payments on a credit card once a month
Click here to see an illustration of dividing your minimum payments on a credit card weekly
I hope today's blog has been helpful to you! In our next discussion, I will provide valuable insights and ideas on how to improve credit scores. Stay tuned for more valuable information!
Visit the other parts of the series here:
Sources:
Fernando, Jason. “The Power of Compound Interest: Calculations and Examples.” Investopedia, May 2023, www.investopedia.com/terms/c/compoundinterest.asp#:~:text=Compound%20interest%20is%20calculated%20by,subtracted%20from%20the%20resulting%20value.
How to Calculate APR on a Credit Card | Chase. www.chase.com/personal/credit-cards/education/interest-apr/how-to-calculate-credit-card-apr-charges#:~:text=Calculate%20your%20daily%20APR%20in,by%20your%20daily%20periodic%20rate.
McGurran, Brianna. “Is It Better to Pay My Credit Card Bill Weekly or Monthly?” Experian, June 2021, www.experian.com/blogs/ask-experian/is-it-better-to-pay-credit-card-weekly-or-monthly/#:~:text=Making%20smaller%20weekly%20payments%2C%20or,for%20rent%20and%20other%20bills.
TED. “Pay Off Your Credit Cards Faster With These 4 Easy Changes | Your Money and Your Mind.” YouTube, 3 Feb. 2021, www.youtube.com/watch?v=QqABUDCiIVI.
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