We live in a society where people buy things that they can’t afford, which means many of us live with crippling and increasing credit card debt. The problem is that the more this habit continues, the harder it is to get clear of it.
But don’t worry, this article is here to help by providing some rules for getting things back under control and feeling good about your personal finances again. So, let’s get into it…
1. Focus on the most expensive debt first
Assuming you have more than one credit card, as most people do, you should start with the one that’s costing you the most in interest rates each month. Credit-building cards that accept consumers with low credit scores are notorious for having sky-high interest rates. So, it’s wise to always check the terms before signing up for a credit card.
But assuming you already have one of those cards, it’s likely to be your most expensive debt due to the interest rates. On this card, you want to pay above the minimum payment whilst paying the minimums on the others. Once you’ve cleared this debt, you move on to the next most expensive debt and so on.
The logic behind this strategy is to lessen the impact that high levels of interest are having on your debt. Remember, it’s often the interest rate that can make repayments unmanageable.
2. Pay as much as you can above the minimum payment
Minimum payments are a trap to keep you in debt for as long as possible, so if your aim is to clear your credit card debt, you should be paying above them. Of course, there are exceptions to this as was outlined in the first point, but that’s because you want to maximise your resources to pay off your most expensive debt.
So, let’s say you have one card with a high balance. The bank will tell you what the minimum payment is each month, but you should pay as much as you can afford to. This will mean you pay off your debt quicker, and without paying as much interest to do so. Ideally, you want to decide on a fixed amount to pay each month and keep paying that same amount even as your card balance decreases.
3. Use balance transfer offers to get rid of interest
As mentioned, interest plays a major part in keeping you in debt for longer. So, being able to remove that interest for a short period may be all you need to do to clear your credit card balance. The good news is that 0% balance transfer offers are definitely a thing.
But the type of deals you are eligible for will depend on your credit report and credit history. Nevertheless, if you’ve had several accounts over a period of years and made payments on time, you should have a decent enough credit history to be eligible for some 0% deals.
You should keep in mind that balance transfers involve a fee, and to read the terms carefully. Banks have different approaches to calculating minimum payments, for example. Once you have completed your balance transfer, aim to clear your debt before the promotional period ends. However, it may be possible to transfer again if that’s not possible.
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So many of us carry credit card debt due to this culture of get now, pay later. And with the ease of online shipping, it’s easy to establish a large amount of credit card debt. The good news is that it’s perfectly possible to get your personal finances back under control if you follow a few rules.
Remember to focus on the most expensive debt first and maximise your payments towards it. In general, you should pay more than the minimum payment and use 0% balance transfer offers to get rid of interest for a short period. Follow these tips, and once you have cleared your debt, establish some healthy habits towards spending to avoid getting yourself into further issues down the line.