How to Reduce Credit Card Debt
Reducing your credit card debt can increase your financial stability. The less debt you have, the more money you are able to save. By taking control of your credit card debt now, you can ensure a brighter future. Not sure how to reduce your debt? Consider these useful tips:
Stick to Just One Card
Do you keep cash in several bank accounts? Probably not. Handle your debt the same way. Instead of managing several credit cards, use just one card that has the lowest rates and fees. Leave the others at home. By using a single card you simplify your expense tracking, and you're less likely to incur unnecessary debt.
Know Your Interest Rate
Credit card interest rates can range from as low as 0% for introductory periods to over 20%. If you're in debt, you should know how much you're paying in interest. You can find this information in your monthly bill, or by calling your lender. Interest rates play a huge role in any debt-recovery plan.
For example, if you had a balance of $1,000 and your interest rate was 22%, it would take you 12 years to pay off the balance making minimum payments. Also, you’d pay back more than twice your original debt. However, if your interest rate was 12%, you'd repay that same debt in less than five years, making the same payment.
Pay Regularly and On-Time
They typical late fee for missing a credit card payment is $50. So if you had, say, three credit cards, and you missed making a payment on each just twice a year, you'd pay $300 in fees—and that doesn't go toward your balance. By paying your bills on time you avoid the late payment fee and maintain clean credit. Look at the various payment methods offered by your lender, and choose an option that helps you pay on time.
Lower Your Interest Rate
Eric Tyson, author of Personal Finance for Dummies, suggests you contact your credit card company and inform them that you wish to discontinue your card because a rival has offered you a lower interest rate. If you have an upstanding payment history, the bank will likely match or beat the competing offer. In a competitive marketplace lenders will generally go the extra mile to keep your business.
Make Extra Payments
By paying more than the minimum monthly payment on your card you effectively reduce the interest you owe to the lending institution. When you reduce your balance, you save money in interest. It stands to reason, then, that whenever you have some extra cash, pay a little extra on your credit card.
Whenever possible, carry extra cash in your wallet for unexpected expenditures. This will save you from using your credit card all the time.
The key to reducing your credit card debt is understanding how credit cards work. Treat them as a tool and not something for making any old purchase. Being debt-free not only feels good, but also leaves you with extra money, which you can spend elsewhere or save.