The Federal Reserve reports that the average credit card debt per household in the US is just over $15,000.
Credit cards are extremely useful in an emergency. If you need a home or auto repair, and you don’t have money in the bank, a credit card can pay for these expenses. In addition, a credit card is an excellent tool for building or rebuilding your credit history.
Despite the usefulness, credit cards are also dangerous. Unfortunately, some people cannot control their spending. They purchase items they don’t need, and when they’re unable to pay for these items, their credit card debt grows.
The truth is, credit cards are one of the biggest financial traps. Not only is it difficult to pay off cards, a high balance can lower your credit score. Ideally, you should keep credit card balances below 30% of your credit line. Since credit card debt can raise your debt to income ratio, overspending and carrying a balance might impact affordability when you’re ready to buy a house or a car — essentially reducing purchasing power.
Fortunately, there are ways to deal with credit card debt. In fact, managing your balances might be easier than you think.
1. Transfer your credit card balances
Applying for a new credit card may seem like an irresponsible way to deal with credit card debt. However, transferring your balances to a credit card that offers a 0% interest rate can help pay down balances faster.
Balance transfer credit cards that work include the Citi Simplicity MasterCard and the Discover It credit card. Several balance transfer credit cards offer an introductory rate of 0% for the first 12 to 18 months, depending on the credit card company. With a 0% interest rate, all of your monthly payments go toward reducing the principal balance. Therefore, these cards can jumpstart your debt elimination efforts.
2. Stop using credit cards
This is challenging, especially if you use credit cards for everyday purchases. However, the more items you charge on a card, the harder it’ll be to pay off your balances. Going forward, only use cash for all purchases. If you don’t have cash, save up and buy the item when you can afford it.
If you need to use your credit card, only charge items if you’re able to pay off these charges in full within a month.
3. Pay more than your minimum
Unfortunately, paying only your minimum each month will not eliminate the debt faster. If you’re tired of debt hanging over your head, revamp your budget and reduce your expenditures. This way, you can free up cash and apply the additional money to your debt. Dropping a lump sum on your cards each month is the best way to get rid of balances quicker. For example, paying $300 a month can pay off a $3,000 credit card in less than one year.
Paying more than your minimum may require sacrifice. You might have to skip a getaway, prepare your own meals or cut other expenses, such as cable and other conveniences.
Striving for financial freedom is an excellent goal. Unfortunately, credit cards can become your biggest hurdle. The more you owe creditors, the harder it’ll be to achieve your long-term financial goals. But if you can overcome debt, there’ll be more opportunities to increase your personal net worth.