IndianMoney.com Research Team | Updated On Thursday, January 16,2020, 04:23 PM
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Debt of any kind means trouble. It affects your spending ability, borrowing ability and credit score. Credit card debt is quite common these days. If you are a disciplined borrower, credit card debt is not going to affect you. But if you keep procrastinating, it can lead to a debt burden. Timely payment of dues is the best method to outlive credit card debt.
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How to Reduce Your Credit Card Debt?
Discussed below are a few techniques to reduce your credit card debt.
Set a Budget
Request a Lower Credit Card with Lower Interest Rate and Fees
Save a good amount each month either by taking up a part-time job or cutting down unwanted expenses (yes, those extra coffee trips can be avoided for a while). Use this money to pay off the smallest debt. Once it is paid off, roll it to the next smallest debt to knock it out. In this manner, you will be able to pay off all the remaining debts.
If you have multiple credit cards, paying off the card with highest interest rate should be your priority. At the same time, make sure you pay the minimum amount on other credit cards as well. Paying off the highest interest rate credit cards reduces your financial burden. This will also leave extra money each month, which you can further use to pay off the next card in line. In this way, try to finish off all your credit card debts. This is the fastest way to eliminate credit card debt.
If your motive is to pay off at least one credit card quickly, then begin with paying off the card with a minimum balance.
If you are looking forward to improving your credit score, start paying off the card with the highest credit utilization rate. Credit Utilization rate is the ratio between your credit card balance and credit limit. A lower utilization rate will be beneficial for your credit score.
Having a spending plan helps organize your finances. Try to set up a realistic budget for monthly expenses. A budget will help realize areas of overspending. Cut down unwanted expenses. This will help you save a good amount of money each month. Utilize this amount to pay off the outstanding credit card debt.
It has the added advantage of stopping you from overspending. With credit cards, people end up spending more than what they can afford. A budget will give clarity on earning, spending and savings.
When you are applying for credit cards, call each company and request a lower interest rate. They are likely to accept your request. This means, your monthly payments and fees would be comparatively low. This can reduce your credit card debt. If you are offered a credit card with a low-interest rate, mention this to the current company. This increases your chances of approval for a low-interest rate.
The process of transferring the outstanding debt on one card to another is called a balance transfer. People often choose this method, to transfer the balance from a high-interest credit card to a low-interest one. This means you will be contributing more towards the principal amount owed rather than interest fees. This can help you come out of credit card debt quickly. While requesting for a balance transfer, enquire on the fee charged for the same.
Consolidate Your Debt
You can consolidate your credit card debt all at once. Take a loan or borrow money from family or friends to pay off this debt. You can then focus on repaying the single loan used to pay off all the credit card debt. This is the best option to apply when you have multiple credit cards with high-interest rates.
The snowball method is a debt reduction strategy. In this method, you list down your debts from smallest to largest; irrespective of interest on them. You pay a minimum amount on all debts except the smallest one.
An interesting fact about the snowball method is that it is behavior-oriented and not based on math. If you start paying off your highest debt first, you will take some time to finish it. Also, you will see your balance facing negative growth. This can mentally stress you. But, if you begin with paying off the smallest debt, a completion will give you hope. This will motivate you to pay off the rest.
Track Your Progress
Once you start paying off your credit card dues, keep track of your progress. You can either use online platforms to do this or manually track it. List out all the debts along with their respective current balances, minimum monthly payment required and your monthly contribution towards it. This will help you get a clear picture of the outstanding amounts and prioritize accordingly.
A credit card can be advantageous if used wisely. It imparts purchasing power to the underprivileged. It helps build a credit history. It is a relief during emergency situations. On the other hand, it has the potential to financially burden a person with debt, if payments are not regular. If you are planning to use a credit card, keep the following key points in mind:
Credit card can be advantageous if used wisely. It imparts purchasing power to the underprivileged. It helps build a credit history. It is a relief during emergency situations. On the other hand, it has the potential to financially burden a person with debt, if payments are not regular. If you are planning to use a credit card, keep the following key points in mind:
Keep a track of your purchases
Consider it as a 0% loan and pay off the outstanding amount monthly
Do not overspend
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IndianMoney.com Research Team
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