Credit card debt is probably one of the biggest financial challenges you will deal with this year. And for good reason.
The past years have been tough financially due to the global pandemic. Health situations led to millions of people getting sick and the rest being asked to stay indoors. This led to businesses shutting down and companies laying people off. As a result, many Americans started relying on their emergency fund and for the rest, their credit cards.
But now that the economy is starting to recover and people are getting back up on their feet. However, the effects of too much debt from credit card use linger for some time. Unless you get a hold of some windfall money, there is a good chance that you will make minimum payments on that debt. And that will take some time to pay off.
It will not help also that your credit card debt could include the holiday expenses you charged in the past month. This could put you in a difficult situation as you start the year. The interest and fees on your card payment could be making it extra challenging to get ahead and pay your card balance. These and all your other monthly payments might start to make you feel a little defeated at the beginning of the year.
But even if you are already starting to feel this way, you need to remember that there are a few things you can do to get out of it. They may not be immediate but looking into them and implementing them could help you in your current situation. Here are a few credit card tips you can explore to get you ahead of your payments.
Audit your current credit cards lenders and payments
Dealing with credit card debt is a tough situation to be in. And usually, there is no one reason why you ended up in that predicament. Although the past few years could easily be the common ground for most Americans, credit card payments are still some of the most difficult financial challenges people need to go through. But it is not impossible.
When faced with any difficulty, the first step is to always have a clear picture of what you are facing. Take a long hard look at the problem so you can find the appropriate solution. In this case, you need to sit down and look at all your credit card payments. List them down on paper or on your computer. The goal is to have a comprehensive list of your payments.
It will also help if you can include as many details as you can in your list. More than the monthly payments, interest rate, and due date, include lender details. Who they are, how to contact them, and even your payment history. This can help you quickly reach out to lenders especially if you are asking for a lower rate. This way, you get an overview of your payments and plot them out in your budget accordingly.
Do you really need a new credit card?
There are times when you might feel tempted to get a new card for different reasons. One is trying to get a better credit score by increasing the credit utilization ratio. Another one is to just have a new card for your next purchase. Though these reasons do have their merits, getting a new card should always be an informed decision.
One example of why some people get a new card is for debt consolidation. This is a great repayment strategy for dealing with credit card debt. One important aspect of this plan is getting a 0% card. When you have this and transfer your credit card payment over to that card, you save a lot of money from interest payments.
Do keep in mind though that these types of cards are on a promotional basis and end after some time. So it is a good idea to try and pay off the entire balance during that time. After that, interest can start on the card and you could be back to where you were in the beginning in terms of the monthly payment on your card.
Work on your household budget
One of the financial tools you will need when trying to get ahead of your credit card debt is your household budget. First Republic shares that on average, American households budget over $5,000 a month. You might not realize it but this is a powerful yet simple tool you have to get you ahead of your payments. But as simple as it is, you need to put in some serious time and effort to put together a working budget.
Its simplicity comes in the inclusions when putting a budget together – income and expense. Of course, you can add items as you go along but these two are the most basic components of a household budget. You need to have a comprehensive list of your income as well as a detailed breakdown of all expenses you have.
This lets you know if you are able to cover your expenses or if you need to start making changes. It gives you also the opportunity to make quick changes if needed and move payments around. More importantly, your budget gives you a payment schedule so you do not miss a due date. This is important because when it comes to credit card payments, missing a payment date increases your payments for the succeeding months.
Create a repayment schedule
Credit card debt is not something to take lightly and you need to at least stick to your due date. Though there are a few things to help you stay on top of this like setting a payment reminder on your favorite calendar app. It is best to set that alarm a few days before the due date so you have time to actually send the payment out.
Debt consolidation also helps you manage your payments better by focusing on just one due date versus several different payment dates. You can also try and make extra payments every month and ask your lender if it can be credited against your principal amount. This way, you get to lower that down and pay off your debt faster.
Do not put unnecessary additional charges
You could be making great headway with your credit card payments but one impulsive purchase on your card can set you back all the way to the beginning. It could potentially undo all your hard work and sacrifice simply because you were not able to control your purchases. And the surprising thing is that this happens to a lot of people because of one thing – a false sense of spending power.
This happens when you notice that your available credit becomes bigger and bigger as you pay down your debt. You start to feel like you deserve a reward for doing a good job. You actually do and you can give yourself a reward. But you have to be very careful that you do not spend more than what you can actually afford.
A good rule of thumb is that when you will spend for a “want,” you save up for it.
Credit card debt is a difficult situation to be in at the start of the year but there are steps you can take to overcome this challenge.