What makes the best debt recovery credit cards?

debt recovery credit cards There are a few attributes that make some credit cards the best for debt recovery. First off, low interest rates and low or no fees are important, since one of the best ways to climb out of debt is to cut the amount that you’re spending on credit. Low interest, no fee cards that offer free balance transfers are even better, since they would allow you to transfer higher interest rate credit card accounts and loans to the new, cheaper account.

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Of course, being in debt often leads to having bad credit. Sometimes a major part of debt recovery is actually rebuilding your credit. To use credit cards to do this, you will need to find cards that report to all three credit agencies. One of the challenges of rebuilding credit and recovering from debt at the same time is that you may no longer qualify for the best credit cards with low interest rates and no fees, so you may have to settle for cards with fees and higher rates, or even for secured cards.

Avoiding Credit Card Debt

According to an article on Investor Guide, the easiest way to avoid credit card debt is to pay off your balance each month. They recommend setting your credit card budget for however much you can afford to pay each month before you even obtain your first card, and then sticking to that budget.

You should always try to pay more than the minimum on credit cards. Minimums are set to try to get credit card companies the most they can get in interest payments, not to help you pay down your debt.

Credit card debt often has higher interest than other types of debt like mortgages and car loans, so you would definitely be better off using any extra money to pay more on a credit card bill than on other debt. For that matter, credit card interest is much higher than interest paid on savings accounts, so if you have a little more than you absolutely need in savings, that extra money would be better spent paying down your credit card debt.

Another way to avoid credit card debt is to stick with low interest credit cards with no fees. Paying less for your credit cards will make the balance on them add up a little more slowly so that they are easier to pay off. You could avoid credit card debt altogether by using a secured card. With a secured card, you put up your own money for the balance so it’s impossible to spend more than you already but in the account.

Prepaid Cards Are Not a Solution

debt recovery credit cards Like a secured card, a prepaid card can help you limit your spending to just what you can afford; however, there is a cost. Prepaid credit cards usually charge fees that can be quite expensive, especially in the case of re-loadable prepaid cards. Paying an extra two to five dollars every time you add money to a card is no way to get out of debt.

Prepaid cards are also not always very good at building or rebuilding credit. Unregistered prepaid credit cards do not report to the credit bureaus and even if you register your prepaid card, there is no guarantee that they will report to the credit bureaus. Prepaid cards that do not report to the credit bureaus will do nothing to build your credit, so they will not get you any closer to qualifying for better interest rates on loans or other credit cards.

Avoid Getting More Credit Cards While in Debt

You probably can get more credit cards if you have a lot of debt, but you probably shouldn’t. The Motley Fool suggests that if you’re in debt you should scale back to just your two best credit cards, meaning the two with the lowest interest rates, and do whatever you have to so that you don’t use the others. The logic is simple, credit cards are often what get you into debt; the last thing you need is more of them.

Of course, the only real reason someone in debt should want a new credit card would be to find one with a lower interest rate to transfer credit card balances to, allowing them to save money and pay the balance down more quickly.

Whether you can actually get more credit cards depends on whether or not you’ve been making your payments on time and how much of your available credit you are using.

It is quite possible to be in debt but still have a pretty good credit rating and in a case like that, getting a new credit card would not be much of a problem.

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