When it comes to paying off your debts, there are a lot of things that can get in your way. There are surprise medical bills, old habits that die hard, and–perhaps most annoying of all–interest. I absolutely hate paying interest. So, I set out to find ways to avoid it, and I came up with three really good ones.
1. Pay Off Your Balance
This should go without saying, but if you are continuing to buy things you can’t afford by putting them on your credit card, stop! You are only digging yourself into a deeper hole. If you have to put it on a card to afford it, you can’t afford it. Switch to cash and pay off your credit card balance as soon as possible.
Read the book that helped me get out of debt:
The The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness
By: Dave Ramsey
2. Switch to a “No Interest” Card
In the meantime–while you are working to pay off your credit card debts–why not transfer your current credit card debt to a new card with a zero percent introductory interest rate? Now, I am NOT advising you to go card hopping constantly–this will hurt your credit. But if you don’t have much left to go, why not speed up the process by getting rid of the interest?
DO read the terms and conditions before you sign. It will completely defeat the purpose if there are huge fees or if the interest rate skyrockets before you are able to pay off your balance in full. This technique works best for relatively small balances on cards with high interest rateswhen you know you will have it paid off before the introductory period ends.
3. Make Payments Immediately
Okay, this one is going to take a little explaining, but it works really well if you can get the hang of it.
Say you had to use your card for an emergency expense, and now you have a $1,000 balance. If you stopped using your card to make any more purchases, you would pay interest on that $1,000 until you eventually got it paid off. That interest would really add up over time, especially if you couldn’t afford to pay the $1,000 off right away, and all of that money would be wasted.
BUT if you CONTINUE to use your card for the normal, everyday purchases that you would make anyways, and you pay off your new purchases as soon as you make them, then you can avoid paying interest on that original $1,000 all together.
Here’s how it works: Say, for example, that this month you need $600 for groceries, $125 for cable, $100 for a doctor’s payment, $75 for new clothes for your family and $100 for miscellaneous purchases. That equals $1,000. Instead of paying cash for those things or putting them on your card to pay off next month, pay them off as soon as you purchase them (or weekly works well too).
When you pay off all new purchases right away, instead of waiting until you get the bill for them, the $1,000 that you pay down on your card will go towards the original $1,000 first–not the new purchases. To you, it will be like you are ignoring that original $1,000 and just paying for new purchases. But to your card, you’ll be paying the previous balance off in full every month, which means NO interest! And then, the next month, when you pay next month’s bills, it will be applied to this month’s balance. And continue on this way each month until you are able to get your debt paid down.
Now, this technique won’t get your balance paid off–you’ll have to pay extra to do that. But it is a great way to avoid racking up interest when you really cannot spare any extra to pay down your debts right now. It kind of puts them in “limbo.” That original $1,000 balance is there, but you aren’t paying interest on it.
Obviously, these three techniques won’t work for everyone. If you are seriously behind on bills, have huge debts or have terrible credit, you probably won’t be able to eliminate your interest altogether. But if you have a smaller debt that you are working hard to pay off, these three tips are a fantastic way to eliminate your interest payment and get your debt paid off faster!
