As the health crisis drags on, it will not be surprising if you begin to have too much credit card debt. A lot of people were caught off guard and unprepared for sheltering in place. Even businesses had to adapt rather quickly. This means that they had to pivot quickly and find ways to keep operations running and minimize impact to their bottomline.
For employees, this meant a lot of different scenarios. The best case is that work continues because they are part of an essential industry. Yes, the threat of the virus is still out there but you maintain your finances intact. Some companies asked their employees to work from home in a bid to keep the business running. But for some, the company had to put them either in furlough status or even completely let go.
When you are dealing with an unexpected financial situation in life, you start to rely on your reserve funds. CNBC shares that about 37% of Americans will use their credit cards for unexpected expenses. Once you start relying on credit, you might soon have too much credit card debt under your name. It will even be tougher when your work is impacted by the pandemic.
It has always been a common financial tip to pay back your cards at the end of the month. This is to help keep you away from debt. But with the financial difficulties that this pandemic has caused, it might not be too surprising to see a lot of people using their cards more. This leads to a higher payment amount than they can afford to pay. This ultimately leads to debt. When you find yourself in this situation, there are a few things to help you manage your finances.
Audit your card usage
When you begin to have too much credit card debt, one of the firsts steps to take is to audit. You need to have a clear understanding of how much debt you are in. This is because there are times when you might choose to ignore the situation. It will not go away even if you throw your statements straight into the trash.
Choosing to do that can even put you in a difficult situation. Other people might get a hold of your statements and use the personal information inside. This could potentially allow them to open new lines of credit under your name or even charge expenses on your card. You need to sit down and go through your card expenses to have an idea of what you are dealing with.
Make a list of all your credit card debt. Do not focus only on the amounts you have to pay. It also helps to list down as many details as you can get. This can include your lender details, interest rates, and even your payment due dates. Having all these details can help you make informed decisions later on regarding your payment strategy.
Pay more than the minimum on high-interest cards
If you have too much credit card debt, the first instinct is to try and pay then off all at once. If you are able to, that would be an excellent idea. But keep in mind that if you pay them off, it should not put your finances in a difficult situation. You might be able to pay off your credit cards in full but end up missing a house payment.
Paying your credit cards in full should not put you in more financial trouble. During this time, it would be more challenging to lose your house at this time. You have to prioritize your payments and your house should be on top of that list. It does not mean that you should put off card payments as well. You can look for a middle ground.
While you make your house payments, you can pay more than the minimum on some of your cards. This will be most helpful especially with the high-interest cards you have. You will not be able to pay them off in one go. But what you are doing is making sure you pay it off as fast as possible. This is because the longer you pay, the more interest and fees are added to your account.
Snowball or avalanche method of payment
There are a few payment methods to help you manage too much credit card debt. The health crisis could have caught you off guard and you are now using your cards more than you want to. Once the amount you have to pay starts to rack up, you can begin to feel pressured and stressed. The amounts are out of budget and you need to manage it as soon as possible.
One of the options you can look into is the Avalanche method. Much like how it was explained earlier where you pay more towards the high-interest cards according to Livemint. You pay the minimum for everyone else and put more into high-interest cards. This way. You save money in the form of charges and fees you would otherwise pay your lender.
The second method is referred to as Snowball payment. The idea is to identify the credit card debt with the smalled st balance and pay that off faster than the rest. Once you do, use the amount you have freed up and pay off the next one. You do this until you pay off all your credit card debt. This is a good way to help you build momentum in paying down your debt accounts.
Consolidate your debt
When you have too much credit card debt, it can start to affect your mental health. This is a stressful time especially if the health crisis has affected your income negatively. You could be on rotation, on furlough, or worse, laid off from work. The pandemic forced the hand of most companies into survival mode. This meant cost-cutting measures which include letting people go.
One of the debt repayment plans that a lot of people are finding useful is debt consolidation. The simplicity in the idea makes it a lot easier to track the payments you have to make. A big part of the problem was having too many payments to monitor on a monthly basis. This can cause some people to overlook and miss out on some payment due dates.
Consolidating your debt puts most, if not all your credit card debt under one account. It allows you to focus on one monthly payment. If you also make use of a 0% card, you can significantly reduce the amount you have to pay every month. Take note that these types of cards have a promo period. Once you reach that date, regular interest rates start to apply. It is best to make the most out of your promo period.
Build up your emergency fund
One of the proven ways to try and avoid huge credit card debt during a crisis is to have an emergency fund. If you lost your job during this pandemic, your reserve fund will help you cover your expenses. All this while you get back up on your feet. If you have enough on your reserve fund for three months, that is time you can use to look for work or look for a side hustle.
It will not be surprising if you have too much credit card debt at a time when the health crisis is already affecting a lot of businesses. But you still need to get a good handle on your payments and have a repayment strategy to get out of debt.