Author: Benjamin Lee
Credit cards may quite likely be one of the most destructive financial instruments ever derived. While this may sound over the top, the numbers simply do not lie. As reported by CNBC, collective credit card debt is now at an all-time high of $1 trillion.
From the extortionate interest rates charged by banks to the strategies used to make you spend more, the danger posed by credit cards is often ignored by most consumers. When left unchecked, credit card debt can very easily spiral out of control.
However, in all fairness, credit cards are in fact useful in their own way. Besides being a source of cash in an emergency, credit cards can also help tide you over during the leaner months. Unfortunately, many of us tend to misuse our credit cards which in turn results in us living beyond our means and on credit.
While some economists may argue that rising credit card debt in the economy is a good sign, for the individual consumer this is not the case. As we’ve seen from another CNBC study, a shocking 70 percent of Americans surveyed admitted that they cannot afford to make their credit card payments.
Shocking isn’t it?
Fortunately, there’s hope on the horizon. With the help of our resident Newsflash.one financial expert, we’ve put together a guide to help you regain control of your finances.
- Start clearing your debt now
The most straightforward way to slash your credit card debt is also one of the easiest. It begins with you paying off your debt immediately.
Every month when you receive your credit card statement, you may be tempted to pay only the minimum amount. After all, you’ve got better things to do with your cash, right?
Wrong. By allowing your debt to be carried over to a new month, you’re essentially giving the bank an excuse to charge you interest on the amount owing. As a result, these your outstanding credit card balance will only grow.
This makes it increasingly difficult for you to pay your debt off entirely. Given that credit card debts are unsecured, banks are free to hit you with absolutely ridiculous interest rates. Instead of lining your banker’s pockets, take charge of your finances and start by paying more than the minimum amount.
Usually, the minimum amount payable is sufficient to cover only the interest charged by the bank and does not reduce the principal amount owed. By paying more, you’ll be able to pay off your debt within a shorter period of time which means less interest paid to the bank.
- Perform a self-audit
If your credit card balance at the end of the month leaves you confused as to where all of your money goes, it’s time to perform a self-audit. Go through your credit card statements and start going through your expenses.
More often than not, you’ll find that most of your purchases are unnecessary and wasteful.
Expensive beach holiday in the tropics? Swipe it with the card.
Hungry and looking for something to eat? UberEats on your credit card it is.
Betting on the Breeders Cup results, because you are a gambling enthusiast? Card!
Over time, these expenses add up and before you know it, your credit debt has exceeded your monthly salary. Usually, you’ll find that you’re much more likely to overspend when paying on credit.
This can perhaps be explained with via two theories. The first being that we’re more careful with cash and debit card payments as the effects are felt immediately i.e. you run out of cash. Secondly, the phenomenon known as coupling i.e. the fact that you don’t have to make payment on a purchase immediately makes you more susceptible to overspending.
Hence, perhaps it’s time you go through your expenses and weed out all unnecessary spending. Whether you’re going for a cheaper internet plan or eating in more often, you’ll find yourself spending significantly less over the long-term.
- Get a balance transfer
The credit card industry is an extremely competitive one. As a result, there are dozens of credit card providers looking to sign on new customers. Hence for the savvy consumer, this is the perfect opportunity to take advantage of the situation.
If you’ve got a solid credit history, most banks and credit card providers will only be too glad to sign you on. Shop around for cards that offer a balance transfer program with zero percent interest rates.
These cards allow you to transfer your existing balance to a new account while giving you a 6 – 24-month grace period in which you’ll be able to pay off your debt without incurring additional interest. Ideally, you should lock down this new card and not charge anything else to it.
While a huge credit card debt can be overwhelming, with some savvy negotiation and plenty of financial discipline, you will have no trouble clearing your debt.