Six techniques to flee the pit of credit-card debt

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Don’t run up a balance on your credit cards, they said. If you can’t pay it off every month, they said, cut it up and throw it away. 

Too late. You ran up a balance. You owe thousands of dollars, maybe tens of thousands, on cards with interest rates approaching your chronological age.  

A consumer can go gray chipping away at credit-card debt. A borrower who owes $10,000 on a card with 20 percent interest and pays $200 a month will retire the debt in eight years and change, at a total cost of $21,000, according to a popular credit-card interest calculator. And that’s assuming the consumer never uses the card again. 

Here are six strategies to get out of debt a little faster. All of them can save time and money. Choose the one that suits you best. 

Get a zero-interest credit card 

It sounds too good to be true: A bank will send you a credit card that accrues no interest for 12 or 18 or 21 months with no real strings attached.  

A zero-APR credit card may be the single best way to drive down card debt in terms of pure savings. The typical card allows the customer to transfer thousands of dollars of debt from other accounts for a one-time fee that equals a few percent of the balance being transferred.  

After that, in most cases, your entire monthly payment reduces your debt. Not a penny gets lost on interest.  

“A zero-percent balance-transfer credit card is an incredibly powerful tool,” said Matt Schulz, chief credit analyst at LendingTree, the online lending marketplace. “Being able to go a year, sometimes up to 21 months, without accruing any interest on a balance is a really big deal.” 

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The downside: Once the promotion expires, the lender will start charging interest on the remaining balance. To avoid it, make a budget. If you can afford to pay $300 a month on a zero-interest card and you have 18 interest-free months, then transfer no more than about $5,000 onto the card. In 18 months, the debt will be gone. 

Remember, too, that “this is going to be a credit card that you are going to have in your wallet and that you will potentially be using once this promotional period is over,” said Bruce McClary, a senior at the National Foundation for Credit Counseling.  

In other words, resist the temptation to amass more debt on the card once the zero-interest clock runs out. 

Pay off the smallest balance first 

A consumer who holds several debts with different rates and amounts can score a quick and painless victory simply by wiping one of them off the list. And why not start with the smallest debt? 

Financial planners call this technique the snowball. List all of your debts, pick the smallest one and pay it off as quickly as possible. Soon enough, a roster of seven or eight debts can shrink to five or six, delivering a rush of snowballing momentum. 

“It’s that momentum that keeps people excited,” McClary said. 

Pay off the debt with the highest interest 

A popular alternative to the snowball is the avalanche: Arrange your debts from the highest interest rate to the lowest. Then, make aggressive payments on the one with the highest rate. 

For a consumer with several debts, focusing on the one with the highest rate makes perfect financial sense.  

“Over time, you will pay less in interest because you are targeting the highest interest rate first,” said Sara Rathner, credit-card expert at NerdWallet, the personal finance company.   

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The downside: If that high-interest debt is a large sum, paying it down may take years. The may feel more like a glacier. 

Snowball or avalanche? “It’s really about finding out what motivates you,” Schulz said. “Some people are motivated by small wins, so it’s better for them to pay off that small balance first and tear up that card and feel the motivation. For others, it’s just about the math.” 

Call a credit counselor 

The techniques listed above aren’t for everyone. Borrowers with subpar credit scores may not qualify for a zero-interest credit card. Dividing and conquering one’s debts only works for those with the cash to pay them down.  

Some borrowers are in over their heads. They may lack the funds even to make minimum payments, triggering costly fees. Fees and interest can push a credit card’s balance past the customer’s credit limit, triggering yet more fees.  

For them, one option is the nonprofit National Foundation for Credit Counseling. A credit counselor “can sit down and review your financial situation and offer an action plan,” McClary said. 

Nonprofit credit counselors can rescue borrowers from past-due notices and debt collectors. They work with lenders to halt or waive late fees, “over limit” fees and other charges and to slash interest rates, reducing how much the consumer owes. The client makes a single monthly payment to the counselor, who divvies up the money and sends it to the creditors.  

A counseling service can deliver a desperate borrower from debt “in four years or less, in many cases,” McClary said.  

Call the bank 

A consumer with one or two credit cards who wants a head start in retiring debt should consider placing a simple phone call to the banks that issued the cards.  

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First, look up your credit score. The higher the score, the stronger your bargaining position. Then, call the credit-card company and start a polite negotiation. The card issuer may agree to lower your interest rate. The company can also waive onerous fees that pad your debt or offer a temporary reprieve from monthly payments.  

“It becomes a little more difficult to achieve success if you have multiple credit cards,” McClary cautioned. And the cardholder may only succeed in achieving temporary leniency, while a professional counselor can negotiate on a more permanent basis. 

Hide the card 

Consumers who aren’t paying off their credit-card balances every month should not be using credit cards. But going cold turkey on credit is not so easy, especially if the card is sitting right there in your purse or wallet.  

One way to dampen credit-card temptation is to take the card out of play, credit experts say. Encase it in ice. Lock it in a drawer. Cut it in two and throw it away. It’s that much harder to swipe a card you do not have.