January 15,2009
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#1 2009 Resolution: Lower Debt, Pt.3 –
– Lop off debt quickly, survey advanced options.Pound that rock hard: As soon as the highest APR debt is paid off, take the amounts that had been going toward that debt and add all of it to the payments of the next-highest. Simple formula and quickest way to become debt-free from all those credit cards. It may be crude, but it works. For those who are looking for the ‘best way', innovations are called into play. There are definitely more sophisticated techniques to get more-powerful results in shrinking credit card debt. Here are a few:
Consolidate toward path of least resistance: For most people, Balance Transfers and Cash Advances come to mind when they hear the word ‘consolidate'. Although these still have some application, they have become much less viable with credit cards then in recent years. For one thing, the ‘cap's have mostly gone away. Only a year and a half ago, Bank of America would hand you $10,000 in cash against a credit card account with free interest for nine months. Such a deal! The only cost to you would be a ‘Cash Advance Fee'. If the fee was set at 5%, then your cost would be $500. Not necessarily such a great deal now, is it? The beauty of it was the ‘cap' thing. You see, there was a maximum fee cap of only $75. Looks much better. Seventy-five dollars is the same amount that a $1,500 Cash Advance would cost, but you're getting the use of $8,500 more for free. Anyway, the ‘cap's gone now. Today you'd have to pay at least 3% of the $10,000, or $300 just to borrow the cash.
Survey your options: Having, pretty-much lost Cash Advances and Balance Transfers as viable options, it may be best to consider some viable alternatives. Some creative counselors in the past have recommended the incentive motivation of just paying off a credit card with low debt, regardless of APR, in order to see some immediately tangible results. That may be OK in a more passive scenario when debt isn't serious and you have lots of time. But, in these days, our nation has found itself falling in deeper despair than ordinary times. Therefore, this may not be the best route at this time. It would be more expensive and the ultimate goal may take longer.