There is no denial of the fact that credit cards have become a crucial need for our lives. No matter if you are paying your grocery bill or buying a holiday ticket, you will always look up to your credit card to cover these expenses. Credit cards are undoubtedly financial tools that allow their holders to earn cash back, and enjoy different valuable perks such as life insurance, etc. However, the problem arises when you build a significant amount of credit card debt. Let it be clear that this debt has a very high-interest rate attached to it which you have to pay under all circumstances. Many credit cardholders are often seen upset because of the huge amount of debt they are carrying along. Below are some tips that you can follow to help you pay off your credit card debt.
Stress on Your Spending Habits
Although it may seem very obvious to you, trust me, you can not make an improvement in something that you don’t have an understanding of. People with huge credit card debts often reach out to financial counselors and upon being asked about their expenditures, they only account for 75% of them. The rest 25% go blank totally. You can’t do anything about your credit card debt if you don’t know where exactly you are spending the money. You have to stress hard and identify the remaining 25% of the expenditures you made. Some of those 25% expenses might include:
- A random stop at a coffee shop for a latte
- Occasional treat during the shopping
- Buying drinks for your friends at work
The above-mentioned expenses are the ones that mainly go unnoticed but later accumulate to 25% of your credit card debt. Once you have figured out exactly where you are spending, it will be much easier for you to control your expenses and devise a strategy.
Start Building a Budget
Once you are clear about your debt and where you are spending the money, it’s time that you start making a budget. This is not complicated at all as there are as many as hundreds of apps online that help you log your income and all the expenses to have a clear picture of where exactly you can find the money to put forwards against the debt. You have to streamline all your expenses like the rent, mortgage, groceries, car payments, and your built-up credit card debt. Let it be clear that even when you are in huge debt, it is crucial that you put some money aside for an emergency fund. In this way, you have some money to deal with sudden emergencies so that your debt repayment doesn’t get affected in any case.
Most people hate to make a budget and staying inside it is even harder for them. In fact, it is very difficult for people who are in a habit of overspending. Always remember that people who don’t make any room for occasional splurges are often seen into troubles. So it’s better to plan for the long term and cut your extra expenditures and that is only possible if you put yourself on a tight budget.
Start Paying More than the Minimum
As everybody knows, the minimum you can pay on your credit card bill is just two percent of the last month’s balance. The problem that resides here is that, if you only start paying the minimum amount to put yourself in comfort, then the rest of the money goes into interest. With 2%, it would take you very long to pay off your credit card bill, so it’s better to pay an extra $50 or $100 every month. This will fasten up the payback process to a great extent.
Talk to Bank for a Lower Interest Rate
Did you know that you can negotiate with your back to give you a lower interest rate if you are struggling with a high credit card bill? Unfortunately, many people aren’t aware of this fact, as a result of which, they don’t get a chance to avail themselves of this option. The reason why banks might agree with your request is simple; if in case you default on the debt completely, the bank will eventually lose more than a percentage point. So basically, they prefer giving their customer a break because it’s in their interest.
You need to have a copy of your entire credit report and make use of it to negotiate for the interest rate you want.
Switch to a Low-Interest Credit Card
Once you have focused on your spending habits and creating a budget for yourself, it must have become apparent to you that no matter what, you still will be holding the credit bill at least for some months. It might be a good option for you to switch to a credit card that has a low-interest rate. Although these cards might not give you the advantages and perks of the cards with high-interest rates, still, these cards can help you to knock off some percentage points from your purchase interest. The interest rates of these cards will be different but will be as low as half as that of a card with a high-interest rate.
Begin an Avalanche
For those who have been carrying around the burden of debts from several different cards, it might be a good idea for them to focus on the avalanche method. It is basically a debt repayment strategy that helps you to make a minimum payment that is possible on your debts. You can also apply extra cash to the debt that has the highest interest rate. Always remember that if you are focusing on the biggest debt first, you are paying less interest. The avalanche method is being adopted by many creditors nowadays to ease their debts. It helps to minimize your interest and also aids you in paying off different multiple debts at a time.
