We all love to spend money we haven’t earned, which makes us fall in love with credit cards. A credit card is not merely a plastic chip but a financial tool that brings us convenience, security, flexibility, rewards, and whatnot. But there’s always the other side of the coin – people often get swayed by the temptations it offers, like increased credit limit and flexibility. And then reality hits them with a not-so-pleasant surprise. Yes, the Credit Card Bill!
Trust us; it’s not fun. If you don’t pay your bills on time, you’ll have a mountain of debt and sky-high interest rates. And this will ruin your financial reputation. So, what should you do? Stop using the cards? There’s something better, such as learning to manage your credit card debts. But if you’re struggling with that, consider seeking assistance from a reputable credit repair services in NYC and you can get out of them without hurting your credit score
So, let’s dive in!
Manage to Pay Your Debt in Full
The first thing you can do is assess your financial situation. Gather your credit card statements and analyze your outstanding balances, interest rates, and minimum monthly payments for each card. List all your debts, including credit cards, auto, personal, and student loans. Now add up your expenses.
Once you have a clear picture of your outstanding debt and utilities list, you can make a repayment plan. Calculate your total income and set aside all your debts to pay. Pay your debt in total because you won’t have to pay interest. Somehow, if you aren’t able to pay your debt in full, lenders will charge a certain percentage of interest.
Paying the Bare Minimum is a Trap
You could be making repayments for years only to realize that you’ve paid more in interest than the actual amount you owed. Paying the minimum amount can be tempting as the amount seems small. Still, the consequences you’ll bear are long-term because the credit companies accumulate interest on the outstanding balance you carried to the next month, which will cost you more daily.
Also, high outstanding balances can affect your credit utilization ratio, which could be at most 30%. Otherwise, your credit score will decrease, and you may encounter issues with credit cards and loans with lower interest rates.
Debt Consolidation Could be a Way Out
You can combine multiple debts into a single loan with a lower interest rate, known as debt consolidation. Consolidating your debt will help you simplify your loans and reduce your total interest amount with a fixed repayment schedule. Applying this strategy will help you to manage your credit card debts in one go instead of making multiple payments with tons of interest.
However, every facility has a downside, and the same goes for debt consolidation.
It would help to have a good credit score to compete for the best interest rates. Also, this strategy will not benefit you if you run up your credit card balances again. It can only help reduce high-interest rates and make you debt-free sooner.
Choose the Best Repayment Strategies
With multiple debts, you can choose to pay your credit card debts with the following repayment methods:
- Debt Snowball
- Debt Avalanche
The Debt Snowball Method
With the debt snowball method, you can initially pay off the smallest debt and make minimum payments on the remaining loans. Once you’ve paid the smallest debt, you can move to the bigger ones, creating a snowball effect. This method looks more effective because you can pay off the debts individually.
The Debt Avalanche Method
The debt avalanche method focuses on paying the debt with the highest interest rate. This method seems more cost-effective as you will pay less interest over time and save money in the long run.
No matter what method you choose, ensure it aligns with your financial interest and goals.
0% Balance Transfer Credit Card
It might look weird applying another credit card when your utmost goal is to get rid of all the debts. But this one is different; it can save you longer. 0% balance transfer cards allow you to transfer your outstanding balance to a new card with a 0% interest rate for the next 6 to 18 months. This strategy will significantly reduce your interest on loans, and you only have to make one single payment without interest.
However, it would be best if you had to maintain a good credit score to apply, and you’ll be liable to pay a transfer fee of up to 3 to 5% on each balance you transfer. Also, once the specific period is over, you’ll pay interest regularly. So clear all your debts before you run out of time.
Talk to Your Creditors to Lower your Interest Rate
If you’re on good terms with the creditor and have never delayed your payment. But for now,
If you cannot pay off your debts, you can arrange a meeting with your credit company. If they understand your situation, they can lower the interest rates and offer temporary hardship programs. But it depends on the following factors:
- You’re on good terms with your credit company
- You’re always punctual in making payments
- You have never breached your credit limit.
Final Words
Managing credit card debts can be challenging. But with proper planning and patience make it possible to manage and overcome it.