The fastest and best way to pay off big credit card debt

credit-card-cut-upWhat’s the best way to pay down a large credit card balance as quickly as possible? All while paying the least amount of interest and not hurting your credit? Glad you asked.

First, understand that the sooner you pay down the principal, the sooner you erase debt. For example, if you owe $10,000 on a credit card and pay $200 a month, $150 of your payment goes toward paying interest. Only $50 goes toward paying down the $10,000 principal (based on an annual APR of 18%).

At this rate, it would take 94 months to pay off your debt, while costing you a whopping $8,622 in interest! That’s an uphill battle everyone should avoid.

Luckily, credit card companies, competing with one another, actually make it easy for consumers. By simply leveraging their special introductory rate programs, you can be on your way to paying down that 10K in no time.

Find a new credit card offer with a zero percent introductory balance transfer – one of the best deals in personal finance. Many banks offer these cards, which today are the strongest promos and longest zero percent APR intro periods since before the 2008 financial crisis. So, apply for one of these cards. Once you’re approved, immediately transfer all your credit card debt to the new card.

Need help finding an offer? Here’s a list of zero percent APR credit cards (with terms).

Once you’ve transferred your balances, it’s time to capitalize on the interest-free period to really break free of debt. And it’s so simple. Just keep paying the same amount you were paying your old high-interest card, only now to the new no-interest card. Now you’re paying off principal at 100 percent.

Pay attention to the terms because once the introductory period is over (typically 12-18 months) the interest rate could actually be higher than your original card. Use this period to pay down as much of your debt as possible.

Stop getting crushed on interest. And start planning that going-away party for your debt. Move your high-interest balances to a zero percent interest card now.

Two Easy Steps to Build Your Credit

So, you’ve reached the point in life where you need to establish your credit and start building your history and score. Congratulations! Credit can get a bad rap when it’s not handled well but if you do your homework and you’re ready to use it responsibly, credit can be used to your benefit. Here’s how.

Step 1: Get a Credit Card

This may seem like a “too-obvious” first step but it’s not one you should make lightly. Do your research. Since you don’t have anything established, you probably won’t qualify for a card with rewards (and if you do, read the fine print carefully). If you’re wary of signing up for a full-blown credit card but still want to earn rewards while establishing credit, apply for a card through a frequently visited and trusted retailer. Your interest rate will likely be higher but if you pay off your balance each month, you can build a good credit foundation without incurring interest charges.

If you’ve recently graduated from high school or are in college, a student-based credit card is certainly worth consideration if becoming an authorized user isn’t an option. While efforts have been made to stifle the more predatory marketing practices, you’ll still need to pay close attention to the details such as APR, fees and limits. You might also consider applying for a “secured” credit card through your financial institution. Secured means that you’ll have an account (checking or savings) tied to the credit card to serve as collateral. Talk to a financial expert about the best option for you based on your needs and habits.

Step 2: Be Responsible

Repeat after me: Do not to spend more than you earn. This financial wisdom holds especially true with credit cards. The most effective way to build an excellent credit score is to pay off your balance, on time, every month. Many first-time credit cardholders get into a good payment habit by setting up their monthly bills, such as cable, insurance or utilities, through their cards. If you’re putting a big purchase on your credit card, try to save up before you put money down and plan to put any extra funds toward the balance.

Lastly, you’ll want to monitor your credit report. You can access your report for free once a year, and it’s something you should definitely do. Not only will you learn your score, but you can also scan the report for errors, which do occur. Anything from a misspelled name to a wrong address can cause issues, so stay on top of your report as best you can.

And there you have it – a two-step process for building credit from scratch. Use common sense and if you need advice, there’s undoubtedly someone at your local credit union who would be happy to speak with you.

Keeping Your Credit Healthy

You eat fruits and vegetables to stay healthy and go to the gym to stay in shape. Having a credit card is no different and requires the same steady participation. Once you’ve established a line of credit, it’s your responsibility to stay actively involved. However, your diligence has its own rewards, such as lower APR rates and bonuses like cash back. Here are a few ways you can make sure your credit scores stay healthy.

Stay on It

Pay attention to what you’re spending. Too often, credit cards can feel like a free pass. Stay mindful of what and how much you purchase. When you get your statement, look it over and check for any inaccuracies to avoid being double-charged or becoming the victim of fraud (especially if you use your credit card for online shopping). Remember: you’re entitled to a free credit report once a year. Set a reminder on your calendar and stay informed.

Rethinking Repayment

A credit card isn’t for spending more than you earn. Think of your card as a 30-day loan that you need to pay back at the end of each month, and save accordingly. Of course, carrying a balance isn’t necessarily a bad thing but carrying a large balance can be. If you make a big purchase on your card, know how much you’ll need to repay each month to avoid additional interest charges.

Right on Time

One of the simplest and most effective ways you can keep your credit healthy is by making timely payments. Aside from hurting your credit score, the additional late fees can add up rapidly over the course of a year, costing you upwards of $300. For many, making more than one payment each month helps keep their credit in check, while helping sustain a steady cash flow for other expenses.

Thinking about opening a card or transferring a balance? Missouri Credit Union offers members a line of credit cards from Elan Credit Card Services. For more information, click here.