7 ways to manage credit card debt
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According to the Consumer Financial Protection Bureau, the average credit card balance at the end of 2020 was $5,000. If you’re struggling with credit card debt, these seven strategies can help you minimize your financial burden and become debt-free.
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1. Contact your credit card company
Begin, Contact your credit card company (or multiple companies if you have multiple cards). Explain your situation and ask if there is anything they can do to help you.
Depending on the company and how you’ve worked with them in the past, they may lower your interest rate, give you a temporary payment rebate, or change your due date. If you’re a loyal, long-time customer and have kept up with your payments, they may be willing to work with you.
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2. Make a plan to pay off your debt
If you don’t have a budget, it’s time to create one. First, list all of your debt, including credit cards, car loans, personal loans, and student loans. Then write down any major expenses like groceries and utilities.
Next, determine your monthly after-tax income so you know how much money you have to spend on your debt, essential and voluntary expenses. You can track your budget manually or use a budgeting app.
If you’re struggling to fund your budget or don’t have enough to pay off your debt, there are some changes you need to make. You can reduce your expenses, increase your income, or both.
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3. Pay more than the minimum
It may be tempting to only make the minimum credit card payment each month. However, it is ideal to pay the full balance or more than the minimum if possible. This is because each balance you carry over into the next month accumulates interest and costs you more every day.
A high credit card balance can also affect your credit utilization ratio, which represents the amount of credit you’ve used versus your credit limit. If your credit utilization is more than 30%, your credit score could decline and even prevent you from taking out credit cards and low-interest loans in the future.
4. Use the debt snowball or debt avalanche method
The debt snowball and debt avalanche methods are two debt settlement strategies you can use Pay off your credit card debt. With the debt snowball method, you focus on paying off the debts with the smallest balance first, regardless of their interest rates. This is a good option if you want to stay motivated and celebrate small victories.
If you choose the debt avalanche strategy, prioritize the debt with the highest interest rates. While you won’t see your balance disappearing anytime soon, the debt avalanche makes sense if you want to save as much money on interest as possible.
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5. Take advantage of a 0% APR balance transfer credit card
If you want to avoid tons of credit card interest, a 0% APR transfer card is worth considering. It can allow you Transfer your current credit card balance to a new card and avoid paying interest for a period of time, often six to 18 months.
Keep in mind that you usually need good credit to qualify, and you’ll likely have to pay a fund transfer fee – typically 3% to 5% of each fund you transfer. Once the introductory APR period is over, interest will accrue at the card’s regular rate. Before proceeding with a balance transfer card, make sure you can cash out the balance at the end of the introductory period or you could be back to square one.
6. Review your monthly spending habits
Chances are you have some expenses that you can reduce or even eliminate altogether. Take a close look at your monthly spending habits and get creative on how to spend less and save more.
For example, if you have a gym membership that you rarely use, you can cancel it. You may also want to prepare most of your meals at home instead of ordering takeout or eating out at restaurants. Another option is to downsize into a smaller apartment or house, or find a roommate to help share the housing costs.
Any change in your spending habits, big or small, can have a positive impact on your efforts Pay off credit card debt. The less you spend, the more you have to spend on your credit card balance.
7. Consider taking out a debt consolidation loan
A Debt Consolidation Loan is an unsecured personal loan that allows you to combine multiple debts into a single loan that can include a lower interest rate and a fixed repayment schedule. This strategy can make your credit card repayments more manageable because you have to deal with a single payment instead of multiple payments.
You can also potentially save hundreds or even thousands of dollars in interest costs and pay off your credit cards faster. The downside is that unless you have good to excellent credit, it can be difficult to qualify for the best interest rates on a debt consolidation loan.
You may also have to pay fees for the loan, e.g. B. a handling fee. Additionally, a debt consolidation loan won’t help if you’re tempted to replenish your credit card balances. Still, this type of loan can be a good option to consolidate your high-interest debt and get you out of debt faster.
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