How to pronounce "crossing"

Transcriber:

If you have credit card debt, you are far from alone.

More than half of Americans are currently carrying around

some form of credit card debt.

And if you're part of that majority

or just want to put some preventative measures in place,

I have four simple changes

that can help you work towards becoming debt free.

[Your Money and Your Mind with Wendy De La Rosa]

Number one: prioritize your payments

and prioritize them in the right way.

So let's say you have two cards,

one with a 200 dollar balance

and the other with a 1,000 dollar balance.

Which one do you pay off first?

Well, if you're like most people,

when people have debt across multiple credit cards,

they tend to pay off the one with a lower balance first

because it feels like an easy win.

It feels good.

We call this the "completion bias."

When you give in to completion bias,

you feel more productive

because you're able to check off quick tasks

from your to-do list.

And you might even get a rush of dopamine while you're doing it.

But rather than looking at the balance -- 200 dollars versus 1,000 dollars --

what you should be looking at is the interest rate instead.

If you're busy paying off a credit card with a low interest,

while the larger-interest-rate card lingers on and on,

you could be in debt for much, much longer.

You can still work the completion bias to your advantage.

Here's a quick tip:

think of that 1,000 dollar debt

as a series of smaller, achievable tasks.

For instance, you could decide to pay 100 dollars towards that credit card balance

each month.

And each time you pay that 100 dollars,

you're crossing something off your to-do list

and achieving that completion high.

You'll not only get that completion high

but you'll have something to celebrate.

Number two: call your credit card company

and ask them to lower your interest rate.

Get somebody on the phone.

Typically, when you apply for a credit card,

it's either when you're young or you lack liquidity.

And in both instances, your credit score is lower.

Your credit score is what lenders and banks and credit card companies use

to determine how much of a risk it would be

to lend you money.

Now, the higher the credit score, the lower the risk,

and the lower the interest rate.

Conversely, the lower the credit score, the higher your interest rate,

and the more money you'll have to pay in interest in the long run.

Over time, with on-time payments, your credit score improves.

But guess what?

Sometimes credit card companies don't lower your interest rate

as a result.

But what we do know is that if you call,

oftentimes, credit card companies will loosen up on their interest rates,

given your credit score improvement.

We only have a small sample, but in my research,

we invited people to come in, call their credit card company

and make the case for a lower interest rate.

Fifty percent of them were successful.

This is a simple way of having a fifty-fifty shot

to save yourself thousands of dollars on interest.

Now, while you have them on the phone,

here's tip number three:

request a change in your payment date.

The payment due date is usually a random day

that the credit card companies set

that doesn't align with your cash flow.

Now, I want you to think about when you typically get paid

and what time of the month you usually have the most cash on hand.

Based on that, pick a payment date that works best for you.

I've seen that it's easier for people to pay down their debt

when they have more money in their bank account.

So if you have credit card debt,

choose a new payment date that falls after your usual payday.

So if you typically get paid on the 15th,

the 16th might be a great day.

Here's my last tip.

Number four: fundamentally change how often you pay your credit card.

So for example, if you usually pay 100 dollars a month

towards your credit card debt,

there are 12 months in a year,

so in a year, you’ll pay 1,200 dollars.

Good for you!

But if you decide to spread that 100 dollar a month payment

into weekly payments of 25 dollars,

you'll end up paying more in the long run,

because there are 52 weeks in a year.

That means you’ll end up paying 1,300 dollars instead of 1,200 dollars.

You will also end up paying less on interest.

It's a natural calendar hack

that you can work to your benefit.

And there are even companies that can help you do this automatically.

These changes may seem small and subtle,

but you'll be pleasantly surprised by the huge difference they'll make,

whether you're overcoming debt

or just trying to avoid it all together.

I'll see you next episode with some more tips.

Your future self will thank you.