It’s rarely beneficial to carry debt on your credit card, but if your current balance is high, it’s essential to pay it off as soon as possible. With the increase in interest rates, these debts may become more costly in the short term.
Getting rid of your debt on your credit card takes a lot of work. I’ve been in this a while ago, so I know how nerve-wracking it is. However, some tips will help you get through it. They will allow you to repay your credit card faster and save on interest rates.
Restrict the Use of Credit Cards
The first step to take when you owe a debt on a credit card is to stop the damage immediately. You can choose to no longer use your cards and make payments only with your debit card or with money. If you plan to continue making payments with these cards, reserve them for essential purchases.
One reason for the difficulty in paying off debts from credit cards is that individuals use their cards habitually. Even when they DO pay off, they regress by paying new fees. To eliminate the debts of credit cards, it is necessary to repay them regularly and to reduce expenses as much as possible.
Set A Monthly Installment
To implement this recommendation, you will have to figure out your net income and your fixed monthly fees, i.e. your essential expenses. Count up every bill you owe, then subtract that amount from your net pay. From the remaining amount, determine what you will pay each month to clear your debt on your card.
Suppose your monthly net pay is $4,000 while your fixed charges are $2,500. You would have $1,500 left over. You might pay $750 to $1,000 monthly for your debts from credit cards. Allow yourself some leeway. Setting a reasonable goal each month is essential.
The most important thing is to determine a specific cost. Setting this amount will increase your chances of keeping things straight and consistent.
Apply for Card Balance Transfers or Debt Consolidation Loans
Both methods of repaying your debts on credit cards are widespread. Below is a description of their process:
- A balance transfer credit card offers an initial 0% annual percentage rate (APR) on balance transfers. The starting APR can be maintained for twelve months, eighteen months or more, whichever applies to the card. If you take out such a card, move your existing balances on your card and save on other interest fees for the introductory period.
- A debt consolidation loan is a personal loan to pay off debts. If you obtain such a loan, you could use it to repay the balance on any credit cards you have. Then you could pay back the loan through fixed payments.
Both of these solutions allow you to reduce your debt interest rate, helping you save cash. They also enable consolidating your debt into one payment per month on a single account.
You will definitely need a solid credit rating to get any of these options and great rates. If your credit could be better, give it a try and apply. However, it’s best to wait, pay off some of your debts first, and then make an application after you’ve improved your creditworthiness.
Establish a Repayment Plan
The decision about the payment amount has already been made, so you need to set up a specific payment plan. You must divide this monthly installment over your various credit cards.
At this time, if you have opted to transfer your balance to a card or loan for debt consolidation, this process is relatively simple. Since there is only one account to repay, you can place your full payment each month on this account. However, if you still need to do so and carry several credit cards, you must set up a repayment plan.
Two commonly used methods of payment, known as “snowballing” and “debt avalanche”, are possible:
- Snowballing: Put the minimum amount on each credit card and apply any extra cash to the credit card with the lowest balance. Once that credit card is paid off, do the same for the one with the lower balance.
- Debt avalanche: Put the minimum amount on each credit card and apply any extra cash to the card with an enormous annual interest rate. Once that credit card is paid off, do the same for the one with an enormous annual interest rate.
The snowball principle effectively keeps you motivated, as it reduces your debt load the fastest. As for the debt avalanche, it gives you the most exciting savings in terms of interest on credit cards because you tackle your debts with the highest interest rate first.
Having to deal with debt on credit cards can sometimes be insurmountable. However, if you manage your spending well, have a plan in place and are diligent, you may be able to pay off your debt sooner than expected.