Credit card debt is a pest that is eating deep into many pockets.
Seduced by the illusion of “free” money, most people tend to be carefree about their credit card spending, thereby piling up more debt than they can carry.
Credit card debt makes up a significant portion of household debt in the United States.
45% of American families are carrying some sort of credit card debt, with an average amount of $6,300. Americans collectively owe over $1 trillion in credit card debt. In 2019, the Federal Reserve reported an increase in credit card delinquencies.
There is no doubt that credit card debt makes up a huge chunk of financial liability which most people bear. Having a grip of your credit card debt is a major milestone that you have to scale on your way to financial independence.
So how does one control credit card debt? Here are some tips that you may find useful.
Your present financial situation is a consequence of the choices you have about money over time.
When we acknowledge this, then we realize that owing is a choice. Even though we live in a society that amplifies instant gratification and glorifies debt, by encouraging us to buy now and pay later, we have to make a conscious decision not to buy things on credit.
Being financially disciplined is an anchor which can hold your finances steady amidst the raging wave of consumerism.
Putting a halt on credit card purchases not only reduces your debt load but also decreases your dependence on a credit card.
If you can maintain a cash-based budget consistently, you would find out that you can plan your finances around your cash without needing extra money from your credit card. This also makes you more fiscally disciplined.
Swapping to cash may seem difficult at first as you are trying to acquire a new financial habit. You can ease yourself off credit cards moderately and make minor adjustments along the way.
Always have a strategy in place to control and reduce your credit card debt.
This implies having a well-thought-out plan on how to reduce your credit card liability. Having a debt repayment strategy makes it easier to keep track of your payments, and assess your progress.
There are two popular debt repayment strategies that you can use to reduce debt. You can either decide to use debt avalanche or debt snowball to reduce your debt.
Debt avalanche refers to a debt repayment method that focuses on paying debts with the highest interest rate first. This method reduces the overall amount you would pay because by targeting debts with high interest rates first, you reduce interest rates that would be accrued on the principal.
The second method is debt snowball. This is a debt repayment method whereby you target the smallest debt first and make your way up the repayment ladder to the highest debt. This method serves as a morale booster for those who may not be keen on tackling their biggest debts first.
Ultimately you should choose the strategy that suits your present financial conditions and outlook.
Looking to get a credit card? Read this first: 5 Warning Signs you Absolutely Need to Know Before Getting a Credit Card
Credit card debt does not have a prepayment penalty.
This means that you are not penalized if you pay off your debt ahead of time, unlike other forms of debt such as a mortgage or car loan. As such, one way to control your credit card debt effectively is by making payments above your required minimum.
This reduces overall interest because your extra payments reduce your principal.
Interest rates in credit cards are affected by the interest rates from the Federal Reserve.
When the Fed’s interest rate goes up, credit card debtors incur more interest on their loans. Similarly, when rates are down, debtors pay fewer interest rates on their credit card debt.
If you are lucky to be in a time when the Fed decides to reduce interest rates, then you can take advantage by paying off your credit card debt.
APR (Annual Percentage Rate) cards don’t charge their holders an interest for a certain period.
Transferring your balance to an APR card helps in lowering your monthly payments and quickens the time you can repay your debt fully. Even if you are unable to pay off your debt during the grace period, the interest accrued would be less because your prior payments have reduced your principal.
When transferring to an APR card, be sure to take note of transfer fees, which can add 3% to 5% to what you originally owe.
Read this next: How to Know You Need Help Managing Your Debt
Credit cards are symbols of our consumerist culture and have become part of our social lives.
However, we should be careful of the pitfalls that come with easy money which can be accessed via these cards. Financial intelligence implies that we reduce maintain zero or little debt in whatever form - credit cards inclusive.
We should limit spending on our credit cards to our basic needs and necessities, and imbibe a frugal lifestyle. To have more control over your credit card debt, try out one or more of the tips we have outlined above.
Photo by Avery Evans on Unsplash
LATEST
November 30, 2023
November 29, 2023
November 27, 2023
