Getting control of your credit card debt is a really hard task. A lot of financial coordination and budgeting needs to be done. Not to mention the monitoring and tracking of expenses. Decreasing your expenses is easier said than done but it is possible.
Few people would deny that using credit cards can make daily life simpler. Dropping the need to carry cash and making it relaxed to shop online and by just using your mobile phone.
However, spending with credit card can from time to time be a little too easy. As it does not always feel like you are actually spending with any cash. This means the temptation is to spend without thinking about the consequences too wisely. Until you hear the ominous thud of a huge credit card bill hitting your mail box.
If you have been caught out like this, the volume of your credit card debt may seem too overwhelming. But don’t panic, there are a few simple steps you can take to start. You can start getting your credit card debt back under control.
How To Get In Control of Your Credit Card Debt
1. Try and make a little more than the minimum payments
The minimum payments required by credit card companies have steadily fallen over the years. Where once it was typical to have to repay a minimum of 5% of your balance every month. It is now common to only have to pay 2.5% or 3%. With repayments this small in proportion to your debt. A large chunk of each payment gets swallowed up in interest charges.
Depending on the Annual Percentage Rate (or APR) of your card, up to 75% of each payment could be ‘lost’ in this way. Meaning that it takes a very long time for your balance to reduce to any great amount.
By trying to repay more than the minimum, even if only by a little, you can speed this process up, and in the long term you will end up paying much less in interest charges. Now that is a good start in getting control of your credit card debt.
2. Prioritize your credit card debts
If you have more than one credit card with different rates of interest, it makes sense concentrate on the one with the highest interest charges. This means not just the one with the highest interest rate, but the one which actually charges you most each month, which could have a lower rate but a higher balance.
Check your statements to see which card is costing you most in interest each month. And try to focus on repaying this card first by putting any spare cash you have into extra payments while keeping to the minimums on your other cards.
This is called the Snowball Method. You eliminate credit card debt one at a time.
3. Change your card
The credit card market is very competitive, and rates have fallen over the last few years. You may be stuck with an old card charging an old rate that is much higher than newer cards. If you can get a new card with a lower rate and transfer your account balance on to it, you could save a lot in interest charges. Helping you to reduce your debt.
If you can get a card with an introductory rate on balance transfers then all the better – you’ll get a few months of interest free credit which you can use to really drive down your balance as 100% of each repayment will be helping to clear your debt.
4. Debt consolidation
If getting a cheaper card isn’t an option or isn’t something you feel happy about, then maybe a consolidation loan would be worth considering. If you take out a loan and use the money to pay off all your credit card debts, you could benefit from a lower rate as loans are generally quite a bit cheaper than credit cards.
The downside to these loans is that the repayment period might be fairly long, and so even though your continuing repayments will hopefully be lower, you will stay in debt for longer and so end up paying more in interest. When done carefully, however, consolidation can be a sound move if there’s little chance of clearing your debt in any other way.
5. Watch your spending habit
All the above strategies for getting in control of your credit card debt will only work if you stop getting deeper into debt. And this means stopping the spending on your cards.
Ideally, you’d cut them up so that you can’t use them again. But this might not be realistic as you may need to keep them as a credit option. In any case, cutting your spending to an absolute minimum will keeping your repayments as high as possible is the only indisputable approach to clearing your debt in the long term.