How to manage credit card debt effectively?
Credit card debt is one of the most common sources of unsecured debt that individuals and families must manage.
In addition to the risks associated with making payments for unsecured debt like credit cards, there are other features built into credit cards that make them especially difficult for individuals and families to manage:
No one ever wants to get into debt. It comes from spending money you don’t have.
This could be for frivolous reasons, or you may’ve had a horrible change in circumstances, like a partner dying, personal illness, divorce, mental health problems or losing your job
Debt’s a symptom, not the problem.
Before tackling, it you must reduce your spending. Not only to stop you borrowing more, but to maximize repayments.
Are you worried about paying your credit card debt?
Facing unmanageable credit card debt – a debt management program might be the answer.
A debt management program (also called a debt management plan or DMP) helps you pay off your debt to multiple creditors with a single, comfortable monthly payment. A debt management plan is convenient, safe, and brings you great benefits. For more advice and consultation from our Credit Card Specialists you can contact us.
You don’t have to as there are some practical ways that you can tackle this issue –
Related – Credit Card Counseling
13 Practical Ways To Manage Your Credit Card Debt Efficiently
Set a goal
First and foremost, make sure you have set goals for paying off your debt. While it is quite easy to run balances up in a short duration, it takes some time and requires discipline to pay them off. Make sure that you have monitored your progress on a daily basis so that you stay on the track and at the same time motivated to reach your goal.
Put your credit cards aside
If you want to see yourself out of debt, you will have to keep those credit cards away until the time you have cleared your debt. Make sure that you have paid cash instead of credit when you do some shopping, this will help you to separate needs from wants. It is imperative that you stay conscious when you are shopping and always think twice.
Freeze your credit
Placing a freeze on your credit makes things a lot more difficult for identity theft. Creditors typically want to see your credit report before extending credit. And if there’s a freeze on it, they won’t be able to see your file. Therefore, they won’t approve credit, according to the Federal Trade Commission. It won’t affect your credit standing at all.
Make a list of debts
Make sure you have prioritized your debts and arrange them as per their importance. Normally, vehicle and mortgage payments top the list as they are two of the most important things for a normal living. Priorities may differ from person to person, there are people who are interested in paying off debts having high interest first. You have to take a decision and set priorities for paying off the debts.
Get your interest rate as low as possible.
The lower your interest rate, the larger the portion of your monthly payment that goes toward paying off your actual debt rather than interest. Look for credit cards with 0% balance-transfer offers to dramatically reduce your finance costs. But watch out for transfer fees, which can be 2% to 4% of the transferred amount.
Cut down your expenses
If you really want to speed up your debt repayment process, you should assess your monthly expenses and then plan to bring down your expenses. You can keep a check on your spending for two weeks in order to have a better understanding of the money flow. Check your spending and find out ways how you can save.
In order to get yourself out of debt, you have to stop using a credit card and have a monthly spending plan. This will not only help you to prevent spending more than what you are earning, but this will also help you to have a time period as when you will get rid of your debts.
Download Monthly Spending Plan Worksheet here.
One of the best ways to deal with the debts is to have some strategies. You can pay your debts on fixed monthly payments first comprising of vehicle loans or mortgages, then moving on to make least possible payments needed for credit cards having a minimum rate of interest. This will help you to increase your payments required for high-interest credit cards. This will surely prove useful in saving a significant amount of money and pay your debts quickly.
Pay off small balances first
Paying off small balances first tend to have a psychological effect and it makes you think that are making good progress. This will provide you with, much needed, motivation to pay off your debts.
Related – Consolidate Credit Card Bills
Save to pay your debts
If you do savings then the money that you have saved can be used to pay off your debts faster. When you pay off your debts quickly, the money that you will be saving will be more as compared to the interest that you get to earn on your savings account.
Shift debts to a cheaper credit card
Used correctly and with discipline, credit cards are the cheapest borrowing possible, especially when shifting debt to new ‘balance transfer’ offers.
It’s possible to get long-term balance transfer borrowing on a credit card for 0%. Even if you don’t have a great credit score there are still attainable deals. Always use savings to repay debt paid
The interest on savings is usually far less than interest charged on borrowing, so paying off debts with any savings is a serious boon.
The reason this is after the main debt switching steps is that you should first try to cut the cost of your debts where you can. Then use what savings you have to pay off as much as you can – but focusing on the remaining high interest rate debts.
Start paying off your credit card debt
It’s one of the most effective ways to bump up your credit score. The “amounts owed” category contributes to 30% of your FICO score’s calculation, according to MyFico.com.
Start by prioritizing your credit card payments, making larger payments on the card with the highest annual percentage rate.
You also might want to consider opening a balance-transfer credit card, which allows you to move expensive debt over to a new card, with a low — often 0% — APR for a set time period. Just make sure to read the offer carefully.
Choose the option of balance transfer
If you use debt consolidation and balance transfers effectively, then they are the best ways to pay off your debts. Consolidating your debts using a consolidation loan or transferring of your credit card balanced to a minimum low rate credit card can also be considered.
Make sure you have gone through the terms and conditions carefully, any hidden charges that you realize when you already opted this solution.
If you decide to go further with this option, you have to stop using your credit cards otherwise you will keep using them and end up increasing your debts.