Some see credit card debt rising during pandemic

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How I paid off 5-figure credit card debt in 18 months

  • In early 2020, I decided to buy a house, but to do so, I had to improve my finances.
  • I took out a personal loan to consolidate my debt, but had no intention of paying it off years earlier.
  • But as I searched for a house in vain, I realized that paying off my debt was what I really needed to do.
  • Read more stories from Personal Finance Insider.

I entered 2020 with five-figure credit card debt. A little less than 18 months later, in mid-June 2021, I paid it off in full.

However, that was not my initial intention when I embarked on the project to improve my financial situation. My goal was, without doubt, to put myself in the best possible position to get even more debt – six figures instead of five: I had decided, in early 2020, to finally buy a house.

I had then lived in Philadelphia for almost nine years and worked there for over seven years; I had a strong community of friends and neighbors around me, I was in a city that I was mostly quite happy with, and I couldn’t see myself going anywhere anytime soon.

So it made both monetary and personal sense to start converting my rent payments into mortgage payments. I would be both building tangible roots in Philadelphia and investing in my long-term financial future at the same time, and if the time ever came for me and Philadelphia to go our separate ways, I would still have a home. where to return if I wanted to.

I Consolidated My Credit Card Debt With A Personal Loan

The first thing I knew I needed to do was change the nature of my debt so that I could increase my credit rating and reduce the burden of my credit card payments on my paycheck each month. So I took out a personal loan from my bank for five years to consolidate my debt at a lower interest rate than any of my credit cards.

This converted my debt into a permanent installment loan rather than revolving debt – which was better for my credit score – instantly reduced my debt-to-income ratio to a fraction of what it was before and reduced my monthly debt payments to a low enough level. point that I had a lot more at the end of each month to put in my savings. I also applied for a loan that was slightly more than the amount needed to consolidate my credit card debt so that I could put some money aside for the down payment on my house.

From there I proceeded to stack as much as I could in the bank from as many corners as I could handle. And I did – between the extra writing and teaching work I undertook, the stimulus payments I left untouched, and a possibly embarrassing amount of money saved through the cessation of my usual social and travel activities due to the pandemic shutdown, I have amassed a much larger down payment than I anticipated at the start of my home search.

This was “helped”, as such, by the fact that the home search ended up taking a lot longer than expected – almost a year rather than a few months, so long that I ended up taking downright a break from research. , especially since the market started to heat up towards the end of 2020 and more and more homes started to move out of my price bracket quickly.

I realized I could repay my personal loan long before the term expired

My late 2020 break continued through early 2021 and then solidly into the spring. My savings continued to accumulate at a solid rate, and by mid-spring I realized that I was able to pay off my five-year loan and still have the minimum initial down payment I had. had expected in early 2020.

I had specifically requested a personal loan product with no prepayment penalty in order to keep this option open at no additional cost – but I did not expect this possibility to arise so soon. Honestly, it upset me a bit, like hitting any goal sooner than I expected: this debt had been a part of my life for so long that I hardly knew how to conceive of my life without it. my neck.

But as the year progressed, as the destabilizing realities of the pandemic continued to erode my understanding of what it meant to even move forward in my life, I realized that I wanted – in fact, I had. need – to successfully erase my credit card debt and be free of that weight for the first time in my adult life. Also, as the housing market continued its rapid rise, I wondered if I really wanted a house right now – or at least a house at the prices and terms currently being presented – and realized that, just now at least I didn’t.

And so, in early June, I went to my online banking portal, nervously grabbed the total loan amount as my next payment, and hit send. The letter informing me of the completion of my debt arrived the day before my birthday. My 2020 self was elated to have managed to completely transform my financial life – it happened in a way I never imagined at the start of this journey, and although I didn’t make it to the original goal of a home, I’m happier for it having turned out that way.

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42% of Americans increased their credit card debt during Covid-19

Covid-19 has triggered unprecedented financial challenges for many individuals and families.

Today, a survey shows exactly where many of them are feeling the pinch – their credit card balances. finds that 42% of American adults with credit card debt have increased these balances since the start of the Covid-19 pandemic in March 2020. Of the society An online survey was conducted in early September and included 2,400 adults, of whom 1,297 had credit card debt.

Of those whose debts rose, 47% said it was directly caused by the pandemic.

“This shows just how widespread and persistent a credit card debt problem can be,” said Ted Rossman, senior industry analyst at

Granted, while many Americans have seen their credit card balances swell, others have been able to reduce those debts since the onset of Covid-19.

Overall, credit card balances are down significantly, according to the latest data from the Federal Reserve.

The results of the survey show that these financial improvements were not shared equally by households, Rossman said.

Plus, once you’re in credit card debt, it can be difficult to get out of it. The reason: the average annual percentage rate is over 16%.

The survey found that 54% of adults have month-to-month credit card balances, and 50% of those people have been in credit card debt for at least a year.

“It tends to be a long-term kind of systemic thing,” Rossman said.

The average person with credit card debt owes $ 5,525. By making only the minimum payments, they will be in debt for about 16 years and pay more than $ 6,000 in interest, Rossman said.

The good news is that as the economic recovery progresses, credit card companies are once again offering 0% balance transfer agreements that dried up earlier in the pandemic, he said.

These offers can allow borrowers to suspend their interest for up to 20 months while they attack those debts.

Typically, you need a credit score of at least 700 to qualify for any of these offers. Plus, you need to make monthly payments on time in order to keep that 0% rate.

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Alternatively, nonprofit credit counseling can help borrowers consolidate their balances, negotiate lower interest rates, and make a plan to get out of debt.

Borrowers may also consider going it alone by consolidating their debts with a personal loan, increasing their income or reducing their expenses so they have more money to spend on their balance, Rossman said.

If you’re feeling overwhelmed with your monthly credit card statement, Rossman said taking these extra steps can help:

  • Find out where you are by writing it down. What is the total you owe? What is the interest rate on this debt?
  • Identify the ways to reduce your debt that work for you. Your choices may include the Avalanche Method, where you prioritize debts with the highest interest rates first, or the Snowball Method, where you eliminate smaller balances first.
  • Don’t be afraid to ask for help. Find someone you trust, such as a spouse, friend, family member, or professional financial advisor, who can help you with the problem and potential solutions.
  • Avoid chasing rewards if you pay high interest rates. If you already have a high balance on your credit card, it doesn’t make sense to keep spending on that card to get points or other offers. Instead, use cash or a debit card for your daily expenses while you work to reduce your debt, Rossman said.

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Pay off credit card debt: four tips from the personal finance experts

This is one of the most common financial problems and can overwhelm you if you are not careful with your spending.

Credit card debt can feel like it takes on a life of its own when you’re not looking, and adding to it is too easy – dinner here, a little retail therapy there, chasing points reward for an airline, splashing out on vacation… it all adds up. Worse yet, you find that you are doing this on multiple cards.

It’s time to take a deep breath and make a plan to pay off the debt you’ve accumulated. The independent spoke with three personal finance experts about what they consider to be the best strategies for tackling credit card debt.

Calculate your total debt and set a debt-free date

In order to pay off your debt, you first need to know exactly how much you have. Create a simple spreadsheet or use a personal finance site like Mint and itemize all of your credit cards, their respective balances, and interest rates.

This will help you clarify the scale of the project ahead and allow you to focus and monitor your progress. You might be surprised how quickly you can get to work paying off what you owe, and the difference a few small changes in your lifestyle can make if you use even small amounts to pay off debt.

Then set a deadline for yourself. When do you want to be free from your debts? Danetha Doe, the creator of Silver & Mimosas, a financial wellness platform for the self-employed, says, “Once you have a date in mind, reverse engineer the process to determine how much you need to pay each month and which strategy is the best approach for you. you. “

Choosing a debt repayment strategy

There are not many ways to pay off your debt, so pick one that you think will work for you, but be aware that if you are struggling, you have other options.

The first approach is known as the “avalanche method” where you first pay off the card with the highest interest rate while paying the minimum amount on other credit cards. “Once you pay off the first credit card, you transfer those monthly payments to the next credit card and so on. Explains Ms. Doe.

Loreen Gilbert, CEO and Founder of WealthWise Financial Services, notes, “People have different opinions on how to tackle credit card debt. Some say pay the smallest first because it is an accomplishment. However, I think tackling the one that generates the most interest makes more financial sense. “

Paying off the card with the lowest balance is known as the “snowball method”. Likewise, as with the avalanche method, you pay the minimum amount on any other cards you own, and then after the first card is redeemed, you snowball those monthly payments onto the next card.

Ramit Sethi, the author of I will teach you how to be rich, is a fan of this method, and notes that if you feel like you’re not ahead of your debt, it’s a quick way to gain a sense of accomplishment in what for many is an uphill struggle.

He advises paying an extra $ 50 per month, either by saving money elsewhere or by making extra money through a side business to cover that amount. Above all, while paying the minimum on your other cards, pretend they don’t exist to avoid getting into more debt.

Says Mr. Sethi, “Paying off the credit card with the highest APR might be the best mathematical method, but you know what’s amazing? Pay a card. You’ll regain confidence, gain momentum, and be ready for a bigger challenge. Before you know it, you’ll have paid for it and you can upgrade to the next card.

A third method is to do debt consolidation. This is where you call your credit card companies and ask if they will consolidate your credit card balances into one card.

Ms. Doe notes that generally, if they do, they’ll offer a lower interest rate on the card. “This can be great for some people because it translates to just one payment per month versus multiple payments which can be overwhelming.”

As a last resort, she suggests filing for bankruptcy. “Sometimes it’s the only option for people to get out of overwhelming debt. Work with a legal expert to determine if this is the right course for you.

Consider a balance transfer

Depending on your credit score, some credit cards will offer you the option of transferring your credit card balance to a 0% interest rate credit card. Keep in mind that this 0% interest will only last for a short time, and once the period is over, the interest rate will skyrocket.

Ms. Gilbert notes: “A lot of people used to living beyond their means use credit cards to finance their lifestyle and then look to shift credit card balances to 0% interest cards. The problem is, rates won’t be low forever, so keeping spending under control is key to getting rid of credit card debt once and for all.

“If you transfer balances to a 0% offer,” she advises, “keep the same payment from your higher interest cards that you had to pay in order to reduce debt faster. “

Be tough on your spending

Use the time you spend paying down your debt to work on setting new financial standards that will hopefully leave you in better health.

“Until the credit cards are paid off, stop using the credit cards altogether,” says Gilbert. “Studies have shown that people spend about 20% more when they use credit cards than when they pay cash. So use cash and break the habit of spending more.

“By the time the credit cards are paid off, you have developed a new habit and you may not feel the need to use a credit card,” she adds.

“If you’re still having trouble sticking to your debt repayment plan, you may need to use a system like the Conscious Spending Plan to manage your spending,” suggests Sethi, referring to the Exact Planning Technique. of how you are going to spend your money up front and stick to it.

“You can also look for big wins that can unlock more income, like negotiating your salary or rent. By earning more (or spending less), you can pay off your debt faster, ”he adds.

Ms. Gilbert suggests a similar practical approach: “Eat half as much a week and use that money to pay off your debts. It may seem like a small amount of money, but that small amount of money can make a big difference. For example, if each meal costs you $ 25, you could pay off the debt of $ 200 per month.

Breaking a cycle of spending and accumulating debt may require a more introspective examination, says Doe. “If you find yourself in a cycle of credit card debt for an extended period of time, or if you are fluctuating between no credit card debt and high debt levels, it is wise to examine your mindset. “

She suggests examining your relationship and your beliefs about money to determine the financial behaviors you need to change.

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Will Credit Card Debt Ever End?

Just when I thought maybe the pandemic had made many Americans realize, when they had less to do and spend money, that they could in fact live without a lot of unaffordable “wants”. and the resulting credit card debt, released this report, based on its recent survey.

“After a record year for credit card debt reduction in 2020, US consumers are once again adding new credit card debt by the billions, racking up $ 45.7 billion in the second quarter of 2021. C This is an all-time record for credit card debt added in the second quarter of the year, and WalletHub now predicts consumers will add a total of $ 100 billion in debt in 2021. ”

These quotes from Jill Gonzalez, a WalletHub analyst, should make everyone think twice, but will they?

Why Are Credit Card Debt Levels On The Rise Again?

“Credit card debt levels are rising again as the economic uncertainty caused by the coronavirus pandemic has subsided. People are reintegrating into society and making up for lost time by living fully, even though they cannot quite afford it. The fact that credit card debt has increased dramatically isn’t too surprising, although it’s unclear whether this will be a momentary reaction to the unique conditions caused by COVID or the restart of the drift. long-term consumers towards financial instability. ”

Why are debt levels rising faster today than before the pandemic?

“Debt levels rose 32% more in the second quarter of 2021 compared to the same quarter in 2019 as consumer enthusiasm exceeds fundamentals. Many of us are not as full as we might be feeling right now, but we are still spending like there is no tomorrow. The starting point also matters. After the start of the pandemic, consumers reduced credit card debt to levels not seen in decades, and now we are seeing pent-up demand in action. ”

Didn’t consumers learn from their pre-pandemic financial mistakes?

“The $ 45.7 billion increase in credit card debt during the second quarter of 2021 indicates that consumers have learned little about sustainable spending from the pandemic. The fear people had of running out of money for food and shelter, not to mention other bill payments, was overcome by enthusiasm at the prospect of post-pandemic life.

Related to another subject, using cash as much as possible, I had a wonderful experience last week. I was at Tom Wahl’s in Fairport for lunch with my grandson. We were served by Gabriellis, an enthusiastic and charming young lady with a great personality. I paid in cash, of course, including the exact change in my wallet. She said: “I also have a wallet, and everyone in my family too, because we pay as much as possible in cash.” She takes a year off and works to save money. There is hope for more people using cash!

Continuing, metaphorically, on the topics of credit card debt and the use of cash, I can’t help but think that sometimes we should take the cards out of the federal government and make it pay new cash. “wanted” programs. The administration says it can fund the many programs covered by the $ 3.5 trillion human infrastructure bill by raising taxes for the rich and corporate.

For some of the programs that to many Americans seem less urgent, why not ask the government to tax, to prove that it can collect the money needed, save it, and then fund the program with that “money saved.” ? ”

He is not proposing that the federal government should operate on a balanced budget basis, which many Americans have proposed. It’s just that for some programs they actually have to be paid so that the national debt doesn’t go up for them.

Following up on the topic of savings, we discussed how the pandemic has shown the importance of having savings in an emergency and that many Americans do not have enough savings in the event of an emergency. emergency. Recently, the Gist by Finny reported this encouraging news on the subject: “More and more employers are starting to explore the idea of ​​offering savings benefits to their valued employees. In a recent Willis Towers Watson poll, 26% of 464 participants said they offer emergency savings as part of their retirement benefits, and 19% said they are considering or heading for it. In addition, “several bills aimed at making provisions for employers and employees in the field of savings have also been introduced recently. The benefits would include things like making it easier for employees to sign up for emergency fund plans, more tax-free access to 401,000 contributions for emergencies, and even automatic savings focused on tax refunds.

On a final topic, I have to be a presenter of a program for mothers who want their teenage daughters to learn important life skills and other skills. One of the topics of my interview will be why you should learn about personal finance and teach your kids about it.

Here are three of my 10 reasons (the other seven will be in the next column):

1. Eight of the top 10 stressors in life, the last time I checked, were money-related, including being the # 1 cause of divorce, with 72% of Americans admitting they were. worried about their finances at work at one point or another.

2. Employers, landlords and others check credit because people with debt issues don’t perform as well (due to stress and time spent dealing with those issues) so people are wasting all kinds of things. things because of bad credit, like jobs, promotions, apartments, etc.

3. Due to incredible marketing, we now live in a “Debt is OK” society, but the interest you pay on debt (like credit cards, car loans seven years and older) means that you will pay more for everything you do. and buy – so you should avoid and minimize debt as much as possible.

John Ninfo is a retired bankruptcy judge and the founder of the National CARE Financial Literacy Program. Find his previous weekly columns at

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Here’s the Truth About Credit Card Debt Relief

Although you tried hard, you couldn’t keep up with your credit card debt. In fact, you have fallen even deeper. Well you have an option to run out of bankruptcy and it is called debt relief. While no financial strategy is perfect, debt relief has helped dozens of people just like you.

Here is the truth about credit card debt relief.

What is debt relief?

Also called debt settlement, debt relief involves bringing in a company to see if your creditors – primarily credit card companies – will allow you to pay less than the full amount you owe to “settle”. »Your debts once and for all. And why would they do that? Well they can see what shape you are in, and know that if you drop bankruptcy, they probably won’t get anything.

How Does Debt Relief Work?

After an initial consultation with a company such as Freedom Debt Relief, you will have a plan formulated just for you. You will be asked to start making monthly deposits to a savings type account that you control. When you’ve saved enough – the amount will depend on your debt and income – your business negotiators will speak to your creditors on your behalf. Once each settlement is reached and accepted by you, the funds will flow out of your account.

Won’t debt relief hurt my credit?

The debt relief process requires that each of your creditors receive a one-time payment in full to meet your obligations. Because you pay your creditors indirectly – from your account – and only after a settlement, your credit will suffer a temporary decline. Once all of your settlements are met and you rebuild your credit, your scores will rebound and then some.

How Long Does Debt Relief Take?

Credit Card Debt Relief – which is basically what debt settlement is – takes anywhere from two to four years, which might sound like a long time, but not compared to the time it would take to try and pay off your debts on your own. Now it would take years, if not decades. Plus, your first settlement will likely come in a few months.

How Much Does Debt Relief Cost?

It depends on the business, but you can have 15-25% of your debt listed. But do you know how “priceless” things can be? It would be your new peace of mind.

Aren’t there a lot of scammers in debt relief?

Not a lot – unless YOU are caught, of course. The point is, most debt relief agencies are up and up. However, it is also true that there is some bad actors there who are more interested in parting with your cash than getting you back on track financially.

What you want is a reputable, credible company with a proven track record. You also want accreditation, so find a company that is a member of the American Fair Credit Council and the International Association of Professional Debt Arbitrators.

What you don’t want is a business charging upfront fees – before they’ve paid off a single debt. It is against the law, by the way. Make sure the company is transparent about their pricing structure and doesn’t force you to sign up. Sometimes companies promise too much or make guarantees, which are further red flags. While debt relief is a popular and broadly wise strategy, negotiations, by their very nature, are unpredictable.

Now that you know the truth about credit card debt relief, you can act with confidence if the approach is right for you. Just make sure you pick a credible, established business to help you out, and you’ll be back on track in no time.

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Credit card debt plagues tenants as eviction moratorium expires

While total credit card balances have declined significantly during the COVID-19 pandemic, this overall improvement masks some significant challenges at the household level. Many tenants are caught in the crosshairs, and the situation could worsen as a result of the Supreme Court decision of August 26 which struck down the CDC’s moratorium on evictions.

Money Management International (MMI), the country’s largest nonprofit credit counseling agency, reports that about half of its recent counseling sessions have focused on housing issues, up from about one in four before the pandemic. . Tenants who turned to MMI for help in 2021 have accumulated an average of nearly $ 25,000 in credit card debtsaid Michelle Jones, the agency’s chief external affairs officer. In 2019, the average was around $ 3,000. This indicates that many have racked up substantial living expenses on their credit cards because they fell behind on their housing bills.

For context, the national average credit card balance is $ 5,313. according to Experian. Just over half of active credit cardholders carry month-to-month balances, the American Bankers Association said. And it is a very expensive debt; Bankrate sets the average credit card interest rate at 16.21%.

Multiple crises collide

Some 11.4 million American adults were behind on rent payments in late June and early July, a Center on Budget and Policy Priorities investigation revealed.

The pandemic is making a comeback, fueled by the Delta variant. The seven-day moving average of new COVID cases in the United States was 153,245 on September 1. as measured by the CDC. This was well above the seven-day moving average (88,047) recorded exactly one month earlier.

While total credit card balances were 15% lower in the second quarter of 2021 compared to the fourth quarter of 2019, according to the New York Federal, MMI’s experiences show how this improvement was not shared equally by all Americans.

A deeper dive into this Bureau of Labor Statistics data reveals a similar trend: general improvements mask the fact that not everyone is doing betternot by far.

The unemployment rate peaked at 14.7% in April 2020 and fell to 5.4% in July 2021. Although this is substantial progress, the unemployment rate is still higher today than it was before the pandemic. In February 2020, unemployment was only 3.5%. This means that the number of unemployed Americans fell from 5.7 million in February 2020 to 8.7 million in July 2021, and that doesn’t even include those who have stopped looking for work for various reasons.

The labor force participation rate, which includes workers and those actively seeking employment, declined 1.6 percentage points during the pandemic.

What to do if you are having trouble

While Congress has designated more than $ 45 billion in rental assistance in late 2020 and early 2021, the rollout has been bumpy and most of that money has not been spent. The Consumer Financial Protection Bureau has a useful list of rental assistance programs available to tenants and landlords. Certified housing advisers such as Money Management International can also help. The end of the moratorium on CDC evictions should make the distribution of this aid even more urgent. (By the way, some cities and states still have moratoriums on evictions, so find out about policies in your area.)

If you have good credit but have accumulated debt, consider getting a 0% balance transfer credit card. Suspending the interest clock for up to 20 months can save you a lot of money. Just make sure you are making progressyou shouldn’t see this as a shell game of moving debt from one card to another, and ending up where you started. Finding ways to increase your income or reduce your expenses can boost your debt repayment strategy.

For those with lesser credit, or even if your credit score is strong but you need a little extra nudge in the right direction, reputable nonprofit credit counseling agencies such as MMI can be extremely helpful. In addition to providing great advice tailored to your individual situation, they can negotiate lower rates with your creditors and consolidate your monthly bills into one payment you can afford. A common scenario is something like a four year payback with a 7% interest rate. These numbers are similar to the personal loan terms available to people with good credit, but accessible to a much wider audience.

Finally, while the window to appeal for goodwill may have expiredif you are late on your bills, you can only buy a limited time from a landlord, credit card issuer or other creditorI still think communication is a good idea. Don’t ignore the problem. At the very least, acknowledge that you are late and come up with a solution. Consider asking for more time to pay them off, a lower interest rate, or another break.

If nothing else, keep the lines of communication open. Hiding is not the answer. Face issues head-on before you get sued or find yourself in a corner where bankruptcy and eviction are your only answers. Getting out of debt is not easy, but it is possible. Don’t be afraid to ask for help along the way.

A question about credit cards? Email me at [email protected] and I would be happy to help.

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3 ways too much credit card debt can hurt your finances

Some people find themselves in credit card debt when too many surprise bills hit. Other times, credit card debt is something that slowly but steadily accumulates over time, to the point where it becomes less and less manageable.

As a rule of thumb, it’s best not to run into credit card debt at all. The more you accumulate, the more money you will lose in interest charges.

But that’s not the only problem with credit card debt. Here are some reasons why too high a balance could hurt you financially.

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1. This can leave you with a higher mortgage rate

The more credit card debt you have, the higher your credit utilization rate is likely to be. It is the ratio that measures your existing revolving debt against your total credit limit. Once this ratio exceeds the 30% threshold, it can lead to damage to the credit score. For example, if you have a total credit limit of $ 10,000 and you owe more than $ 3,000, you risk negative consequences. This, in turn, can make borrowing more expensive.

If you’re looking to buy a home, having too much credit card debt could leave you with a lower credit score – and end up with a higher mortgage rate. Plus, if you have too much debt that you monopolize too much of your income, a mortgage lender may turn you down completely.

2. It can make a personal loan more expensive

Just as you might end up with a lower interest rate on a mortgage when your debt load is huge, the same could happen with a personal loan. In fact, since personal loans are unsecured, meaning that they are not backed by a specific asset, lenders rely heavily on the credit scores of borrowers to determine rates. interest to be granted. But if a huge pile of debt lowers your score, it could mean paying a lot more to borrow.

3. It can cause you to lose lucrative credit card offers

There are many credit cards that offer attractive rewards programs and signup bonuses. These can put extra money in your pocket, but if your high level of credit card debt lowers your credit rating, you might not be eligible for these offers. If anything, you’re more likely to end up with a credit card that offers less rewards and charges a higher interest rate on new balances.

No longer have debts

If you’ve somehow climbed a huge pile of credit card debt, don’t despair. Instead, try to reduce that balance as quickly as possible.

Set a budget so that you can carefully track your spending, and cut as much spending as possible to free up money to pay off your debt. You might also consider finding a side job to raise extra money that can be used to pay off your debt.

At the same time, check to see if you qualify for a balance transfer, which will allow you to transfer your existing credit card balances to a new card with a lower interest rate. This, in turn, will make that debt easier and less expensive to eliminate. And the sooner you do it, the less your personal finances will be affected.

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