Wednesday, September 27, 2023

11 Things To Get Out of Credit Card Debt 

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Credit cards are becoming a threat to all Americans. Because recent studies have revealed that one out of three people has overused their credit cards to settle the credit card, this has increased the debt significantly. National Retail Federation has stated that holiday sales were increased by 11.5% in 2021 than 2020. However, the omicron variant, inflation rate or any existing problems within the supply chain have not impacted the spending behaviour of Americans. TransUnion has estimated that the credit card balances would rise significantly in 2022

What can you do to get out of credit card debt?

1. Settle one debt firstly 

If you have few credit cards, focus on fully settling the card with high-interest rates and charges. Further, try your best to pay the minimum amount to settle for each card. On the other hand, you can settle the card which has the lowest amount. Then, after fully settling that card, you can pay the following card with the lowest amount.

2. Treat your card more than your money 

Credit cards give you more protection and rewards than your money. Hence, credit cards have good partnerships with various restaurants, hotels, grocery shops and many more. Also, you can buy something which costs high even if you do not have enough money. Hence, if you want, you can go for easy payment methods.

3. Settle more

Pay extra than your minimum value because it would help you to reduce your balance amount. Hence, most of the time, credit card companies charge different charges, which can be high if you have a considerable amount to settle.

4. Go for Instalment payment plans (Automate)

This would be beneficial for those who do not remember to pay for their credit card on a specific date. On the other hand, you would avoid late payments too. However, do not forget to review all the transactions you did each month. Hence, that will help you to identify any fraudulent fees or charges.

5. Minimize your unnecessary expenses 

If there are reasonable offers and rewards, you need to obtain those using your credit cards. But, do not ever use your credit card to make unwanted payments. Otherwise, it would lead to an increase in your debt amount. Always try to buy things with a plan. Just imagine buying foods from a cafe restaurant without preparing your meal. Of course, it would cost you more. But, if you can buy the essentials and make your meal, you can minimize your expenses. Do you know that? It is effortless to save money from groceries.

6. Fully settle the statement balance

Settling the credit card amount before the stamen date would help you avoid any late charges or additional costs.

7. Make your budget 

Make your budget if you want to get out of your credit card debt. What should it include?

  • Your total income
  • Your total expenses 
  • Allocation for your emergency fund

There are plenty of budgeting techniques. However, which I presented is a simple format. You can make your budget by adhering to your style. However, you need to correctly identify your expenses if you need to control your expenses. So guys, let me know more about the emergency fund. 

What is this emergency fund?

Life is full of uncertainties. So if any unexpected money loss is occurred, this fund will save you. My recommendation is to save 25% from your total income as the emergency fund. Also, many financial advisors recommend keeping 3-6 months value of expenses. This fund can be saved in a saving account that gives you a high rate of interest.

8. Avoid cash advances

Cash advances are coming with a high amount of additional charges. Also, it has a high rate of interest rate charges too. But, on the other hand, it would put you at more risk in settling the payments. Also, many credit card companies do not offer a grace period for these cash advances most of the time. So obviously, the charges for cash advances would be high. 

 Tip – Pay on cash advance as quickly as possible to avoid the high-interest rates.

9. Read Statements and all other documents

This is another crucial thing that you should not ignore. Maybe reading is boring. But reading the statements will help you understand their charges, how they charge, and the other benefit they offer. Having in-depth knowledge regarding all the terms and conditions would make sure you control your debt.

10. Maintain a Low level of debt to credit ratio

This debt to credit ratio implies the amount of used credit compared to the total credit limit you have. This is also named the credit utilization rate. It can be calculated as follows,

Credit Card Balance/Credit Card Limit = Credit Utilization Rate.

Do you know that? Creditors and other lenders prefer 30% or below credit utilization rate. However, try your best to reduce that rate below 10% to obtain the best credit score. Having a high credit score would ensure you go for the lowest APR. Having the lowest APR would ultimately help you get out of the credit card debt. Also, try to obtain 0% APR credit card as those cards would not charge interest for a specific period

11. Obtain Fixed Rate Loan

Most probably, the rate for a personal loan is lower than the interest rate of credit cards. So, you can easily apply for a personal loan and settle the entire due amount at once. You can avoid unnecessary charges and save little money if you plan the loan amount correctly. 

Bottom Line

There can be multiple reasons behind obtaining a credit card. However, how you manage your credit card/cards would decide the amount of credit card debt. Settling the minimum amount, paying on time, creating your budget to limit unwanted expenses would help you manage your credit limit wisely. However, do not forget to obtain the maximum benefit from the credit card rewards programs. 

Tip – How to manage your multiple credit cards. 

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