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.