Debts are an inevitable part of being an adult. Almost everyone has to deal with some form of debt at some point in their life. Debts can teach you how to handle your finances and make you more responsible.
However, when things get out of hand, it can cause a lot of fiscal as well as mental stress. Credit card debts can be particularly worrisome. These are high-interest debts that tend to snowball into major debt. It can seem almost impossible to get out from under them.
As always, prevention is better than cure. Even if you have already racked up a considerable amount of credit card debt, you can still emerge from under it. Wondering how? Here are a few ways to avoid or get out of credit card debts.
Make a Monthly Budget
The most common reason why people go under debt is that they fail to understand their budget. Yes, it is a boring task to sit down and make a budget. But without understanding your expenses, you are bound to outspend your income and end up in debt.
Start by noting down fixed monthly payments such as rent, utilities, and loan repayments that you cannot miss under any circumstances. Now, look at your spending pattern for the past few months to understand other variable expenditures such as groceries and fuel.
Once you know your essential expenditure, the rest of your income is available for random purchases and savings.
Pay Cash or Use Debit Cards
Try using cash or debit cards whenever you can. With both of these, you are only spending the money you have at the moment. With a credit card payment online, you are essentially borrowing money intending to pay it back in the next billing cycle.
If you are unable to make that payment when the bill arrives, you get into credit card debt.
Pay Credit Card Bills on Time
Every time you miss paying your credit card bill, the balance gets carried on to next month’s bill along with interest on the balance and a penalty for late payment. The interest and penalty might seem like small charges at the start, but they can snowball before you know it.
Your credit card bills have the same due date every month. Keep reminders on your phone to ensure that you do not miss a payment.
Pay Your Full Balance
One of the most common mistakes that leads to credit card debt is that people often choose to pay only the minimum amount due.
Paying the minimum amount ensures that you aren’t penalized. However, the balance amount due is still subjected to interest when it gets carried on to the next billing cycle.
If you keep paying only the minimum amount due instead of the full balance, you will soon find yourself with a huge debt that can seem impossible to pay off.
Additionally, when you pay the full balance, you are freeing up the credit that is available to you.
Ask for a Lower Interest Rate
When you are trying to get out of credit card debt, you realize how much of the debt is the interest. Merely reducing the interest rate can help reduce your debt.
How can you do that? Start by contacting your credit card company. Many will reduce the interest rate if you explain your situation to them. If some other credit card company has contacted you with an offer for a lower interest rate, then make sure you mention that too.
Your credit card company will try to match it or give you a better offer if you have been a long-time customer with a good record.
Be Mindful of Balance Transfers
Another great way to reduce your interest is to transfer the balance from a high-interest card to another new card with a lower interest rate. While balance transfer can help you reduce your debt to an extent, you do have to make the payments regularly to get out of debt.
Using balance transfers as a way of postponing the payment can only increase your debt. Even if the interest rate is lower, it doesn’t fall below a threshold. Every time you carry on the balance without paying it off, the interest continues to accrue, albeit at a slower rate.
Strategize Payments
When you have a mountain of debt, the thought of getting out of debt can be overwhelming. However, all you need is a strategy to tackle the debt, and you will get out of it soon. There are three strategies that you can use.
Avalanche Method
You pay the minimum due amount on all your cards, except for the one with the highest interest rate. On the one with high interest, you pay as much as you can above the minimum amount.
Once you have finished paying off that one card, you can tackle the next one with the highest interest rate in a similar fashion, and so on.
The avalanche method helps you save money while repaying your credit card debt, as you are reducing the interest accrued on the debt.
Snowball Method
You pay the minimum balance on all cards. But you pay as much as you can above the minimum balance on the card with the smallest debt. It gives you a psychological boost when you can pay off cards faster.
Blizzard Method
Combine the above two methods and you get the blizzard method. You pay the card with the highest interest first, followed by the one with the lowest balance, and repeat the process until you are debt free.
Convert Payments to EMI
If you have a large amount due on your credit card and it feels like you won’t be able to pay it off in one go, you can convert credit card payment to EMI. EMIs will feel more manageable and predictable, since there is a fixed monthly amount that you know beforehand.
It is better than paying just the minimum amount and hoping for the best. Converting your credit card bill into EMI offers a clear-cut strategy of making the payments.
In Conclusion
Credit card debt can seem daunting to tackle. The tips mentioned above will help you stay out of it in the first place. If you do get into it or are already in debt, then you can use the strategies mentioned above to clear your dues and live a debt-free life.
