Standard & Poor’s has already fired a warning shot by downgrading the U.S. long-term credit outlook, and consumers, investors and business owners relying on debt financing should prepare themselves for what could be on the way. A lower credit rating on U.S. debt would lead to higher interest rates for everyone. For more on this, continue reading the article from The Street below.
When Standard & Poor’s lowered its outlook on the United States’ long-term credit rating from stable to negative, it was seen as a warning to lawmakers unable to agree on a long-term plan for cutting the deficit.
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- Pay more than your minimum payment. Your minimum payment is usually only 2% to 5% of your balance. At this rate, it will take many years to pay off your debt. Thanks to one of the provisions of the CARD Act, your credit card bill shows exactly how long it will take. You may be surprised about how much you will pay in interest by paying just the minimum each month.
- If you have multiple credit cards with outstanding balances, focus first on paying off the card with the highest interest rate. Continue to pay the minimum on your other cards until the card with the highest rate is paid off, then focus your effort on the card with the next highest interest rate. Keep your oldest credit card accounts open and occasionally use them to buy a magazine or a movie ticket — just pay it off each month. This may help improve your credit score.
- Use micropayments. If you have extra cash or skip dinner at a restaurant, apply that to your credit card balance immediately. Divide your monthly payment in half and pay that amount every two weeks. By the end of the year, you will have made 26 payments, or the equivalent of 13 monthly payments. The extra monthly payment resulting from this payment plan will enable you to pay down your debt at faster.
- If you have a credit card balance, stop using it for anything other than necessities. If you use cash, you will not only save money on interest, but also reduce the amount you spend. Credit cards are convenient, but if you carry a balance, you are still paying interest for dinners, clothes, entertainment and things that are long gone.
- Check into transferring your balance to a card with a lower interest rate. If your rate is above 15%, it could pay to transfer the balance for that card to one that offers 0% APR for at least 12 months for balance transfers. The Citi(C_) Platinum Select card offers a 0% rate for up to 21 months, and the Discover(DFS_) More card offers 0% for 24 months. To take full advantage of this 0% interest, pay as much as you can above the monthly minimum. Use the card only for the balance transfer, not additional purchases, so you pay it off as quickly as possible. Pay attention to the balance transfer fee.
- Use tax refunds, birthday money, bonuses, inheritance and other such found money to pay down your balance. Sell things you don’t use. Every little bit can make a big difference.
- Set up automatic payments or notifications. Do not slip up with a late payment. This will increase your rate and put you further behind.
This article was republished with permission from The Street.