How to manage credit card debt
There are many things to love about credit cards. They allow you to pay for everyday purchases, such as gas and groceries, without thinking too much. You can also use them to finance large purchases such as an engagement ring and pay off the debt slowly.
When well-managed, credit cards can empower users to build up good credit scores and finance important purchases. However, the lack of proper management of credit cards can lead to a vicious cycle of unending and unsustainable debt.
By the time you sign up for your first credit card, you need to have an idea on how to manage credit card debt. You need to understand the terms the provider is offering, including their interest rates and penalties. Responsible credit card holders have a strategy to manage their debt.
Here is how you can develop yours.
Develop responsible spending habits
Your credit card is a convenience tool, and not free money. Most people who cannot pay their credit card debt spend money on unnecessary things. Have a monthly budget and track your actual spending from month-to-month. Be strict about what you can use your credit card to pay for. Impulse buying is a major challenge for credit card holders. If you realize certain environments are triggers for extravagant spending, leave your credit card behind when visiting them.
Have a strategy to pay off credit card debt
The best way to manage credit card debt is to pay it off quickly. A safe strategy is to have one credit card, which you pay off immediately after your paycheck comes in. In fact, you can automate this process so that you never forget. Late payments are a major blemish on people’s credit card score.
However, if you have fallen behind for months and have several outstanding credit card loans, you’ll need a more well-thought approach to attacking them. You can start off with the smallest amounts. Paying them off brings satisfaction and the belief that it is indeed doable. An alternative method is to pay off the most expensive debt based on the interest rate. Paying expensive loans first saves on the total amount you’ll spend to clear your debt.
Building an emergency fund
One way to avoid maxing out your credit card is to build an emergency fund. This takes at least a few months for most people, but it is extremely important. Set up an automated debit from your checking account each month to an emergency fund account that you cannot easily access from your phone. Automation is a powerful tool in finance because it takes away the mental effort of deciding how much to send. Chances are that you will skip or stop saving altogether after the second month.
Engage a debt relief partner
Working with a debt relief partner is a great option for credit card debt relief. A debt relief partner negotiates with creditors on your behalf, convincing them to settle for less than the total amount you owe. This route is extremely helpful to people who could not pay with credit cards because of circumstances such as illness, disability, or long-term unemployment.
Debt consolidation
Debt consolidation can be done in two ways. First, you can take a lower interest loan to pay off your high interest credit card debt. Another way would be to transfer the loan balance on a high interest credit card into a new card. A financial adviser would tell you whether debt consolidation is a good option to help manage your credit card debt.
Take the journey one step at a time
It’s possible to pay off all your credit cards and stay debt free. However, you must take the bold steps to ward off extravagant spending and live within or below your means. Develop a plan and stick to it long enough to see the results.