Eliminating credit card debt is of vital importance for your overall financial health. Your debt will grow larger over time because of interest charges, thus making only the minimum payment redundant. It may take even longer if you miss payments, as they will add up.
A large credit card balance will negatively impact credit, as credit scores are based on credit use. Experts recommend using less than a 30% utilization rate.
What do you need to know about credit card debt?
You need to figure out how you got into debt in the first place and avoid future overspending. One good way to do that is to review past credit card statements and find any patterns. That way, you can change any spending habits.
Try to create an emergency fund if you think your credit card debt is due to some significant, unexpected expense. It will help in covering big bills without the risk of future debt.
5 ways to eliminate your credit card debt
You will need a strategy to pay off credit card debt. Choose a strategy on how to make changes and reduce spending.
Pay More Than the Minimum
The Consumer Financial Protection Bureau advises you always to pay your entire credit card balance.
By paying more than the minimum debt, you can pay off the debt quicker than by just bringing in the minimum. That way, you will cover your total balance and prevent further charges.
Another good option is to consolidate your debt by combining multiple balances into a single one. Many use credit card balance transfers or a debt consolidation loan for that.
The balance transfer allows you to move unpaid debt from multiple accounts to a new credit card. It is best to pick a card with a lower interest rate for a limited time. This will help you save money.
Keep in mind that the interest will increase after the intro period, so make sure to pay off the balance within the dedicated time frame.
Always read the terms and conditions for any fees before you apply to have a fully informed decision.
If you struggle to pay off your debt, consider borrowing money from a peer-to-peer lender. Popular names are LendingClub.com and Prosper.com.
These websites offer loans with lower interest rates reaching up to 20 or 30% below most credit cards. That way, you will save hundreds of dollars in interest rates.
Debt repayment strategy
There are a few good ways to reduce spending and save interest money. Here are some proven debt repayment strategies.
Create a budget with monthly bills and your debt. Write down the monthly amount and subtract any bills and the minimum required debt. Consider how much to spend of the amount that’s left over.
Once you know how much debt you have, set a goal on how to pay each month. Figure out how long it would take and start paying it off.
Track your spending. There are several methods to do that – different apps, a spreadsheet, pen, and paper. You need to put everything down and review that log every so often. That way, you will understand your spending habits, spot any issues, and find solutions.
Seek help from a family member or a friend. They can support you through your journey towards paying off your debt with budget ideas or free things to do.
Filing for bankruptcy
It is easy to file for bankruptcy via credit card debt. In this case, credit card companies can address the Credit Card Act of 2009 and raise the interest on your cards. Miss one monthly payment and get a fee on your next monthly bill. Then do it for two months in a row.
They can also do this if:
- Credit score goes down;
- You have owned a card for more than a year;
- Increase in prime interest rates;
- The end of the promotional introductory period.
How to choose the right method?
Too much credit card debt can seriously damage your financial health. Balance can grow over time and negatively affect credit card scores. Furthermore, this will hinder your ability to qualify for new loans and credit cards in the future.
It is not easy, but paying off credit card debt can be paid off with a plan. Please keep track of it and pay more than the bare minimum. That way, your credit score will surely increase.