How to Eliminate Credit Card Debt
It is easy to reach for your credit card for daily necessities when cash is scarce. However, good credit card management tells us to think twice before making that decision. According to WalletHub, the average U.S. household has $8,284 in credit card debt. One of the best ways to improve your credit score is to start reducing your credit card debt.
“Credit card debt can be easy to accumulate but difficult to eliminate if you don’t have a plan,” says Kerri Burke, a banking center manager with Comerica Bank. “Before using your credit card you should ask yourself if you have the funds to pay for it. If the answer is no, then it’s time to put the card down.”
Preventing debt takes planning. The following tips will help you avoid getting in trouble with your credit cards. If you are already facing debt, these tips can also help you reverse the problem:
Create a Budget: Before you spend or charge anything, you need to know what your finite expenses are each month. Evaluate where you can save after calculating your cost of living (rent/mortgage, groceries, bills). Eating out less, eliminating unused subscriptions or tightening luxury spending can result in savings. Once you identify ways to save, your next goal should be to pay the balance on all your cards each month. If the money isn’t in your budget, don’t continue to spend. A clear sign you are in trouble with managing your credit cards is if you can only pay the minimum each month.
Get Organized: You need to know what you are tackling to eliminate credit card debt. Create a spreadsheet outlining your cards, the amount of debt on each and the interest rate. This game plan allows you to get rid of your debt faster.
The Fewer Cards the Better: It’s a simple concept: the fewer cards you have, the less trouble you can get into. It is easier to keep track of your spending with one or two cards versus five or 10. If you find yourself owing to multiple cards, pay off the card with the highest interest rate first. A balance transfer could be an option for some. Reach out to your financial advisor and see if transferring the balance of your high interest card to one with 0 percent interest could work to your favor. Ultimately, the key is to improve your financial habits to prevent from having to transfer balances.
Only Buy What You Can Afford: If you don’t have the money to back up a purchase, don’t buy it. Credit cards are not mini-loans. This goes back to budgeting. If there is a non-essential item you want, start saving for it. Don’t charge it and accrue debt/interest on it. If you find yourself in an emergency such as health issues or a home/auto repair, charge the expense but create a payment plan to eliminate your debt in a matter of months.
Pay on Time: One late payment can negatively impact your credit score. A simple way to pay less is to pay on time. Even if you are paying the minimum amount, you will not face additional charges, which are tantamount to throwing your money away. The goal is to chip away at the principal. Over-due monthly fees eliminate this possibility.
For more these and more financial tips, visit www.comerica.com/insights.