(WXYZ) – If you’re like a lot of people, you may have thrown away the plastic when paying for gifts over the holidays, or you ran up serious credit card debt during tough times during the pandemic.
Whatever the reason, you may be making a New Year’s resolution to pay off a large debt. There are good ways to go about it.
Jennifer Bloom, director of client engagement at Bloom Advisors in Farmington Hills, she hears clients worrying about debt every day.
“There are always people who call and say, ‘I spent too much over the holiday season. What can I do? ‘” Bloom said.
She said there are four steps to paying off your credit card debt.
Step 1: Grab a pen and paper and get organized.
“I want everyone to write down all of their debt and the corresponding interest rates. Write out a detailed budget – what you are currently spending in a month. And I want people to spend time figuring out what their current credit score is,” Bloom said.
Step 2: Plan a strategy
Either the “Avalanche Method” or the “Snowball Method” works fine.
“Avalanche is about making a minimum payment on all of your debt, then using all the money you have to pay off your debt with the highest interest rate,” Bloom said. “The snowball method is to make a minimum payment on all of your debt, then pay off your smaller debt first before moving on to a larger one, regardless of the interest rate.
Bloom said that with the avalanche method you’ll pay less interest over time, but it takes discipline, and maybe even some extra dough from a side hustle to make it work.
With the snowball method, you’ll probably pay off a card faster, which is very motivating for some, but you’ll spend more money doing it.
Other options could include refinancing your debt or taking out a low-interest personal loan if you qualify.
Balance transfer options can help, but watch out for interest rates that expire quickly.
Step 3: Ask for a lower interest rate
“Call your card issuer and let them know you’re considering transferring your balance, but prefer to work with them and negotiate your rate,” Bloom said.
Step 4: Act
Like all New Year’s resolutions, Bloom said if you only make it for a month, it will cost you in the long run.
It is important to remember that you are entitled to a free copy of your credit report every 12 months from each of the three national credit reporting companies.
You can order them online at annualcreditreport.com, the only authorized website for free credit reports, or you can call 1-877-322-8228.
If you call the number, you will need to provide your name, address, social security number, and date of birth.