If you've ever carried credit card debt (and most of us have), you know how difficult it can be to get out from under it. The Federal Reserve's data shows that as of the fourth quarter of 2018, the average APR for all credit card accounts is 14.73%. With interest rates like that, it's no wonder so many Americans struggle to pay off credit card debt.
When you're ready to tackle your debt, it pays to be strategic. There are several approaches you can take. Popular examples include the Snowball method and the Avalanche method. The Debt Lasso method is a little more complicated but can save you money on interest and get you out of debt sooner.
The Debt Lasso method, created by Debt Free Guys, combines good old-fashioned debt consolidation with the Avalanche method.
In case you don't know, the Avalanche method involves tackling your most expensive debt first, while making minimum payments on everything else. Once you've paid the highest interest debt, you focus your efforts (and any recouped cash) on the next most expensive debt. And so on and so on, until you're debt free.
With the Debt Lasso method, you shift around credit card balances so that you have the lowest possible interest rates, and then you prioritize your most expensive debt.
To apply the Debt Lasso method and obliterate your debt as soon as possible, follow these steps:
If 0% isn't an option, lower is still better. You could look at getting a consolidation loan for several of your higher interest cards. If that isn't an option either, you could look at transferring a high interest balance to a card with a lower rate. If you have a card with a 20% APR and one with a 12% APR, it makes sense to transfer the balance of the 20% card to the 12% card (if you have the room).
You can also call your credit card provider and ask for an interest rate reduction. If your card is in good standing, it's a possibility.
The Debt Lasso method is an option for anyone willing to put in a little work to reduce interest costs and repay debt. Realistically, though, it works best for people with decent credit.
David Auten of Debt Free Guys explains, "The Debt Lasso is best suited to those who have an average or above average credit score because they will qualify for lower interest rates on consolidation loans or zero balance transfer credit cards, although many even with poor credit scores can qualify for lower interest rates if they spend a bit of time searching. A great place to start when you have a poor credit score is a local credit union." You can check your credit score and read your credit report for free within minutes by joining MoneyTips.
Auten cautions that to apply the Debt Lasso method successfully, you need to read the fine print on balance transfer offers.
"Remember that for each balance transfer, you can be charged between 1% and 5%. These transfer fees really add up and cut into your overall savings. Secondly, watch out for missed or late payments, since these can trigger a change in interest rate from the 0% offer to well over 20%, which defeats the purpose of the transfer."
Balance transfer offers usually have an expiry date. Whether the offer is good for three months or eighteen months, you'll want to make sure you repay the debt during that time frame. You also need to know what the interest rate will be after the promotional period if it will be something terrifying like 30%, you'll need to pay down the balance or transfer it before then.
"If you're not committed to paying off your credit cards that have transferred balances, it may be better to go with a consolidation loan at a low to moderate interest rate, such as 4% to 6%," advises Auten.
If you want to reduce your interest payments and lower your debt, join MoneyTips and use our free Debt Optimizer tool.
Originally Posted at: https://www.moneytips.com/debt-lasso-method-of-paying-off-debt
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