How to Win the Debt Repayment Game

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Updated on Wednesday, May 21, 2014

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Debt: one of the most vulgar of four letter words. Okay, maybe your parents wouldn’t wash your mouth out with soap for uttering it, but here at MagnifyMoney it’s a word we hope is prefaced with “I used to have” or “I don’t have any.”

Except this isn’t the case for nearly half of Americans.

According to our recent survey, 42.4% of Americans carry credit card debt with the average amount being a startling $10,902. This equates to average payments of $408 per month towards credit card debt.

You’d think with those steep monthly payments, the debt would be paid off in about two years. Unfortunately, that isn’t how debt repayments work. Monthly payments end up being primarily put towards interest with just a tiny amount of the principle debt being chipped away. 75.7% of those surveyed were paying higher than 15% interest rates on their debt meaning it could take years to decades of making minimum payments for them to crawl out of the red.

Fortunately, there are ways to leverage your existing credit card debt to your advantage.

That’s right. You can use debt to make the banks fight over you. Just think about it as being on any reality TV show where contestants compete for love. Except you aren’t elbowing other indebted individuals in the face, the banks are brawling for you to give them a rose.

In financial terms, it’s called a balance transfer.

With a balance transfer, you move your debt from Bank A to get an offer from Bank B. Bank B might give you a 0% interest rate for 18 months, which means all your payments are paying down the principle debt you owe. This can not only take years off your repayment strategy, but save you hundreds to thousands of dollars.

Why does Bank B want your debt? Because they’re counting on you tripping up and falling into one of their traps, so you’ll end up paying interest. If you follow our rules and stay strategic, then you can beat them at their own game.

There is one caveat: you need excellent credit. If you have a credit score of 750 or above, then you can use our Balance Transfer tool to see which option is best fit for your debt. Remember: you can’t transfer debt from one card to another with the same financial institution. If your original debt is with Chase, then you’ll need to find another option for your balance transfer.

What if you don’t have excellent credit?

Balance transfers are often exclusively reserved for people with credit scores in the 700s. If you haven’t quite reached that level of financial health, you can still utilize a debt consolidation loan to borrow money or help refinance existing debt.

Debt consolidation loans also know as personal loans have far less traps and temptations than borrowing on a credit card. They also provide fixed interest rates, which means you don’t have to worry about your interest rate suddenly getting hiked up like you do with a credit card.

You can go through the process of seeing if a debt consolidation loan is the right fit for you without a hard inquiry on your credit score (hard inquiries make your score drop a few points).

Explore your debt consolidation loan options here.

Dealing with a credit score below 600?

You can try applying for a personal loan with One Main if your score is at least 550, but you should focus on taking steps for increasing your credit score.

Never fear, we’ve laid out six simple steps for building credit here.

What happens after debt repayment?

Once you fight your way into the black, it’s important that you assess the behaviors that put you in the red to begin with. Sometimes extenuating circumstances, such as medical emergencies, suddenly flip our lives upside down. Other times, an innate need to keep up with the Jonses can push us to live outside of our means. Identifying your road to debt and learning how to stay out of the red can be just as important as the process of paying it down.

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