Mistakes to Avoid when Paying off Credit Card Debt

Making the decision to break the cycle of credit card debt is an excellent choice. It can be achieved with focus, determination and the knowledge needed to avoid the most typical mistakes such a path can ensue. The benefits of breaking free from the monthly obligation of servicing credit card debt are manifold and the first step to living within ones means. Take motivation from the prospect of reduced monthly outgoings once the debt is cleared and no longer subject to interest payments.

It is a mistake to attempt to pay down credit card debt without a clear plan of action. The first mistake to avoid is simply paying down the debt without considering if the current interest rate charged is open to negotiation by the lender. A reduction in interest rate will lower the debt immediately. If a lender is not at first open to offering a reduced rate then persist and contact the lender each month as payments begin to reduce the outstanding debt.

Many people make the mistake of tackling their smallest credit card balances first. Whilst this can bring the satisfaction of seeing one particular credit card paid off in a timely fashion, it is a mistake not to always focus on paying the card off first which has the highest interest rate. Interest continues to accrue on any outstanding balance thus it is imperative to pay the card with the highest interest rate first in order to pay the least interest necessary.

A huge mistake which many people make when tacking credit card debt is to borrow the funds to pay off the balances. An even bigger mistake is to take on some form of secured debt to reduce unsecured debt. Never take a home equity loan or other form of secured loan in order to pay down the unsecured debt on credit cards. Avoid using overdraft facilities too.

The only time it makes sense to borrow to pay down credit card debt is to transfer outstanding balances to zero percent credit cards, providing the monies paid out in the balance transfer fee still represent a saving on the current interest rate.

Another mistake to avoid is to continue using credit when attempting to pay down debt. If further purchases are added to a credit card it is hard to break the cycle of debt. Instead it is much wiser to focus on eliminating the credit card debt completely and restoring ones credit score to good order.

It is worth remembering that credit scores are not only affected by late payments but by the ration of credit to debt. The best advice is to ensure that the debt is reduced as soon as possible to thirty percent of ones credit limit. As the balance reduces leave the credit limit at the same level and when the card is clear don’t close it.

It pays to focus on contributing a set minimum monthly amount towards credit card debt reduction, enabling an end date to be in sight when in debt will be eliminated. While making the payments to achieve this goal remember to avoid complacency by not attempting to negotiate a better interest rate, to focus on the debt with the highest interest rate, and avoid all unnecessary borrowing or credit card use.