How to reduce credit card interest or operation "Bank, Capitulate"

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How to reduce interest or operation: Bank, Capitulate!
2 years ago
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If you find yourself buried in debt it may be time to employ operation ??"Bank, Capitulate". Lately banks have been getting all the bailouts, and it is time for ordinary consumers to work on bailouts of their own. By transferring their high APR balances to low APR credit cards consumers can save themselves thousands of dollars in interest charge and get out of debt faster than they ever thought possible.

Operation "Bank, Capitulate" starts with a simple assessment of the credit card balances you hold and the interest charges associated with each one. As you go through this exercise keep in mind that banks can change interest rates often, so be sure you are working with the most recent information available. After you have a list of your holdings it is time to develop a plan for maximum interest savings.

Step 1: Transfer available balances from Low APR to High APR credit cards
Just consider the scenario you would have with the following credit cards, sorted in ascending order by interest rate.

Bank Credit Line Debt Available APR Monthly Interest
Chase $5,000 $3,000 $2,000 10% $25.00
Citibank $6,000 $5,000 $1,000 18% $75.00
Capital One $10,5000 $10,000 $500.00 28% $233.33
Total         $333.33


Chances are your list will look something like this, with similar interest payments and interest rates. In this scenario the key first step is to lower the amount of debt carried on the credit card with the highest interest rate, in this case the horrible 28% APR on the Capital One card.

These simple steps could save our sample cardholder lots of money on interest payments and other charges. Let?ôs start by transferring $2,000 of that high interest Capital One credit card debt to the much lower Chase credit card. After that is complete we will transfer another $1,000 from Capital One to the Citibank card. Let?ôs take a look at our payments after those transfers.

Bank Credit Line Debt Available APR Monthly Interest
Chase $5,000 $5,000 $0 10% $41.67
Citibank $6,000 $6,000 $0 18% $90.00
Capital One $10,5000 $7,000 $3,500 28% $163.33
Total         $295.00


This simple strategy yields a monthly savings of $38.33, or a yearly dividend of $460.00. If you could use some extra money in your wallet this easy to follow strategy could pay off big time.


Step 2: Pay off High APR cards first
But those savings are only the beginning. The next step is to use those savings to pay off your high interest debt and become debt free once and for all. By taking that extra money and putting it toward that high interest debt you can save even more money.

You can maximize your savings even more by staying on the lookout for those 0% APR balance transfer offers that sometimes land in your mailbox. By transferring your high interest debt to those 0% cards you can really trim your monthly interest payments and put even more cash toward retiring that debt for good. This can be an excellent strategy, but it is vital to know when the promotional APR period ends. It is easy to keep track of these expiration dates by writing them on your calendar or setting a simple reminder in your email program.

Once you have freed up extra cash by using the strategies outlined above it is time to start paying off those outstanding credit card balances. When paying off those outstanding balances it is important to start with the highest interest rates first ??doing so will give you the biggest bang for your buck. If you were to implement this strategy using the above example you would pay the minimum balances on the Chase and Citibank cards, while paying as much as you could toward the high interest Capital One card.

After the card with the highest interest rate has been paid off completely you can move on to the one with the next highest interest rate and so on until all of the cards have been paid off. All along you will be using the money you save through your balance transfer strategy to fund those extra payments. This strategy requires a bit of hard work and research, but the savings are well worth the effort. Your credit score will also gradually go up while you are paying off your credit card debt because the amount owed is responsible for 30% of credit rating.

Becoming debt free is a very worthwhile reward, and once you are debt free you will never have to worry about those high interest rates again.

by Beconrad
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