Credit card debt is something that causes huge anxiety for many people. When looking at a statement, it can appear daunting and insurmountable. People fall into arrears on their credit card payments for a variety of reasons. Medical bills, moving to a new apartment, buying a car or education costs can leave the someone with regular finances with an unexpected credit card bill. People can become unemployed for a period, or might be awaiting the arrival of a paycheque after starting a new job. All these reasons are valid, and racking up a significant amount of debt on your credit card is understandable.
It can be tempting to ignore the elephant in room. You may want to pay a minimum amount back on the debt or avoid it altogether. This is not a strategy that you should adopt. Credit card interest quickly builds up. Most credit cards providers require a minimum payment of between 1% and 2% on your balance. Throw your APR percentage on top of that, and you could end up paying quite a significant more amount than you originally owed.
Ignoring your credit card debt will not help your credit score either. The amount that you have paid, and when you made the payment are two major factors when determining your credit score. Getting on top of your payments is an important step to achieving a good credit score.
Create a Plan
Like any problem you may face in life, you need a plan to help alleviate the situation. Create a strategy for yourself as to how you will get out of your problem. For each credit card that you own, track the amount of debt, the limit, the interest rates, the APR, and what the minimum payment is. Doing this will give you a clear understanding of where your personal finances lie. Knowledge is power, and once you have a proper assessment of your debt, you can arm yourself with a strategy.
Tackle Smallest Debt First
If you have a number of debts on various credit cards, it is understandable that you might want to tackle the biggest debt first. While this is tempting, it might be better to tackle the smallest debt first. Pay off an amount on each credit card, and before long that smallest balance will return to zero. This will give you the motivation to keep your personal finances on track. You will then witness the other balances edging towards zero. Consistency is key, and making regular payments on each of the balances will aid your overall strategy.
Tackle Highest Interest Rate
Interest rates can be as hazardous as the debt you acquired. Find the credit card that has the highest interest rate, and tackle that card first. Interest rates can eat into the amount that you have to pay off other debts. In adopting this strategy, you will find that the cost of your total debt will be less in the long term.
Many credit card companies will offer as 0% APR introductory rate when they transfer their balance over from another credit card to theirs. While these rates are only temporary, possibly 12 – 18 months, it could provide you the breathing space that you need to tackle your debt. However, you need to be aware that a transfer balance on some cards could be between 2% and 5%. It’s important to remember that your new transfer card is to tackle your debt, not to create new debt. You should also be aware of the fine print on a transfer balance card. Make sure that it is a package that works for you.
A personal loan could be an option to tackle your credit card debt. If you feel that your problems are insurmountable, then a personal loan could give you the peace of mind that all your credit debts are paid off at once. However, a personal loan will require a set payment every month. Unlike a credit card, it does not have a minimum payment structure. If you have a history of poor debt management, you could be faced with high-interest rates on a personal loan.
Budget Your Finances
This might appear to be the most obvious of strategies, but tackling your expenses is the most effective plan to reduce your debt. Assess what you are spending each month and find somewhere you can cut back. Creating a personal budget will greatly aid you in this challenge. Discover purchases that could be made using a debit card instead of a credit card to avoid amounting extra debt.