How to Pay Off Credit Card Debt
A credit card is a wonderful financial instrument, earns you reward points, enables you to enjoy discounts, and help you make shopping even when you do not have money to pay. Also, credit cards help you withdraw cash during a crisis. Despite all these benefits, credit cards have been spoiling the financial health of many across the world. The blame is not on the credit cards but the users who overspend and get trapped in the financial clench. There are many instances, we tend to manage credit cards by making the payment of minimum due is a mistake credit card user does since its introduction. When you accumulate the credit card outstanding and keep it for some time, the bank imposes interest and other charges on the outstanding. In this article, we will try to explain how to pay off credit card debt and recover your financial health like magic. This article helps you acquire a decent understanding on how to pay off credit card debt fast without taking additional loans.
Practice following a systematic approach if you are in a situation to pay off high credit card debt which gives you routes in channelizing your cashflows based on priorities. The systematic approach helps you understand the areas of your revenue leakage in terms of unnecessary expenses. Some of the important steps are explained below:
1.Define your Goals
It is critical to have SMART goals when it comes to repayment of high credit card debt. When your goals are specific, measurable, achievable, realistic, and time-bound, human spending will become cautious. When the goals are SMART, it is easy to stay focussed on the repayment of obligations.
2. Freeze your Credit Cards
When you feel that your credit card outstanding is extremely high, the first thing you should do is putting the credit card usage on hold. When you stop spending on your credit cards, the outstanding amount will stop growing. If you freeze your credit cards, you will realize the quantum of liability you require to clear.
3.Prioritize your Debts
Prioritizing debt is as important as paying the outstanding obligation. Often, we tend to commit a mistake in terms of paying lower interest obligations first and retaining high-interest obligations for long period.
4.Trim your expenses
There is an old saying, a rupee saved is equivalent to the rupee earned. Trimming unnecessary expenses help you save money for paying debt obligations while ensuring financial discipline in your life.
5. Use the Debt Snowball Method
This is the most popular method used to pay off credit card debt. In this method, the credit card user pay-off credit card outstanding that is smaller while continuing to pay the minimum due on the other credit card debt. This method has an indirect impact on the way we think about our debt obligations. There are a lot of changes in the approach between clearing multiple smaller financial obligations and clearing one big financial obligation. This method gives confidence to the credit card holder since they can close certain credit cards and hence the number of obligations drops dramatically.
6. Debt Avalanche
In this method, the debt with the highest interest will be cleared first to save on interest payment. This method helps you to save the time value of your money. When the highest obligations are cleared, the borrower will have the comfort of planning for small financial obligations.
7. Balance Transfer
If you are feeling like you are unable to handle credit card debt obligation (often difficult to manage with minimum dues), better to talk with bank officials and request them for EMI option. Though there will be some processing and other charges, this method will greatly help you in managing the growing debt obligation. Remember, you can opt for balance transfer only if the interest rates of a balance transfer are lessor than the existing loans. There is no point in agreeing for higher interest rates to transfer your credit balance.
8. Take Moratorium
A moratorium is the best method to handle your competition debt obligations even when your cashflows are shaking. The moratorium option helps you to postpone your financial obligations by a certain period so that you can focus on clearing debt obligations on priority. When you opt for a moratorium, the banks will not bother you for payment of outstanding since moratorium has got legal tender. Yet, you need to understand that moratorium also comes with certain charges which you may have to pay as soon as your moratorium period is over. Please note the moratorium option does not waive off your regular interest charges as it continues to accumulate until you pay off the obligation.
9. Pay More than your Minimum Due
Often credit card users tend to pay the minimum due and manage the debt obligations. Remember, your minimum due will not help you to come out of debt obligation. Even it helps you, it will take longer than usual time. Further, the growing interest rate will grow an outstanding balance. When you pay the amount more than the minimum due, the outstanding loan amount will start declining which is good for the debtor. Sometimes we must look at the outstanding credit card dues in equal chunks rather than considering that as a single balance. This helps us quickly pay off credit card debt. Don’t forget, paying minimum due is like arranging temporary solutions for your financial problems and it is not a solution to exit your debt obligations.
Remember “Don’t take a loan” is one of the best advice I ever received from a Banker. Though it was not in the best interest of the bank, the financial manager offered this advice for me which I truly believe as one of the most practical advice from a financial planner.
I hope now you got an answer to your question How to Pay Off Credit Card Debt?
Hope you enjoyed the article. Please share your thoughts in the comment section.
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