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Everyone has and uses a credit card, yet only a few know how to manage and pay off their credit card debt.
It’s crucial to manage your credit card debts well because your credit score is directly affected by it. Your credit score determines if you can access credit and what sort of terms you will be offered.
For example, you’ll need a mortgage loan if you want to buy a house and a student loan if you want to study but can’t afford it in cash. Similarly, you’ll need a car loan if you want to buy a car. Even if you’re financially well-to-do and don’t need any loans, your employers, insurers, and landlords will check your credit report to determine your reliability.
Now that you understand the potential severe consequences of mismanaging your credit card debts, let’s dive in.
1. Choose a Payment Strategy
Are you someone who needs to build up momentum for the long haul? Choose the snowball debt repayment method.
But if you want to save as much money as possible, the avalanche method is the ideal choice.
With the snowball method, you focus on the lowest debt balance on the list and work your way up. Knocking out the little ones creates the momentum to tackle the bigger ones down the stretch.
With the avalanche method, you focus on the highest-interest debt first, then down the list to the lowest-interest debt. I like this method because, ultimately, I’ll pay less in overall interest charges. In other words, I saved on potential interest expenses.
Both methods require you to make minimum payments on the other debts while focusing on the “target.”
2. Pay More Than The Minimum Payment
The banks love it when you only pay the minimum amount.
Because minimum payment hardly reduces the balance, the longer you maintain the balance, the more interest the banks can charge you. Your loss is their gain.
Among the 5 factors of calculating your credit score, credit utilization makes up 30% of your score. Thus, it is in your best interest to keep your credit utilization as low as possible.
So, pay more than the minimum each month to reduce the balance as quickly as possible.
3. Set Up Automatic Payments
Automating your payments is the simplest way to stay on top of your bills.
Doing so ensures you’ll never miss a payment, incur late fees, or affect your credit scores. As you know, payment history is the number 1 factor in calculating your credit score, so missing a payment can severely impact your score.
Also, automating payments can help you ensure the minimum payments are made to all other debts while you focus on the targeted debt.
4. Work With Your Creditors
Some creditors offer assistance programs to people struggling to repay their credit card debts.
While they love it when you keep a debt balance, they hate it when you default on your debt. After all, they want to get paid back what they’re owed.
They offer assistance through a hardship program. A hardship program is a payment plan negotiated between you and the bank. It often involves a lower interest rate, waiver of fees, or both over a period of time. The plan depends on your circumstances and the terms and conditions you agree to.
Be sure to fully understand all the terms and conditions before proceeding.
5. Keep Track of Your Spending
The objective of tracking your spending is to look for expenses you can cut off or reduce to lower your living expenses.
This frees up additional money to pay off credit card debt quicker and reduce potential interest charges.
Some ways you can cut down on expenses are:
- Make your own coffee
- Switch to generic brands
- Wait 72 hours before you make the purchase
- Plan your meals and grocery shopping list for the week
- Cut unused subscriptions, memberships, and streaming services
6. Increase Your Income
Cutting expenses and saving money has its limits.
So, the obvious next step is to increase your income. You can do this in the following ways:
- Freelancing
- Work extra hours
- Start a side business
- Negotiate for a raise
- Sell unused personal items
The more money you make, the quicker you get out of debt.
Stop Letting The Banks Profit Off of You
Choose your debt repayment strategy and start listing and ranking your debts accordingly.
The pain of adjusting your lifestyle and sticking to the plan is worth it. You’ll get your financial peace, improved credit score, and progression in your financial goals.
And from then on, you hold the steering wheels of your future.
