Many people use credit cards extensively thanks to the benefits and offers that they present, along with the facility of paying at a later date. However, the opportunity to pay your dues later can prove a danger in disguise, as credit card debt can pile on fast before you know it. Outstanding debt incurs huge interest charges. This can put you in a financially tight situation. Repaying credit card debts fast and in the most cost effective manner should therefore be a top priority in your financial agenda. Some of the means to do this involve financial instruments, while others are simply financial management habits that you must imbibe. But both are important.
Financial Solutions to Repay Credit Card Debt Quickly
- Consolidation: Applying a balance transfer on your credit card with a low or no balance transfer rate is a great way to combine several higher-interest balances into one loan with a lower rate. Remember to factor in the balance transfer fees.
- Refinancing a Mortgage or Loan: This is an option if you own a home. Refinancing helps shift the high interest rate of a credit card debt to a lower-interest mortgage or loan. In short you can avail your home loan to pay off the credit card debt. However, it is important to study the interest rates, the terms of payment and the impact in case you default on your mortgage.
- Get a Personal Loan: Personal loans typically have lower interest rates than credit cards. You can avail a personal loan to pay off your credit card debt in one go. Then pay monthly instalments on your personal loan. However, there is an element of risk – defaulting on a personal loan leads to more serious consequences than defaulting on a credit card.
Habits to Help Repay Credit Card Debt in The Short Term
- Cut Down on Spending: The first action you should take to pay off any debt is to cut down on your spending. Prepare and stick to a monthly budget taking into consideration your urgent repayments.
- Divert Your Savings (Not Your Emergency Fund): Consider diverting any other non-essential savings to paying off debt first. This is because the money you save by paying down your debts faster are bound to be significantly higher than the interest you earn in a savings account.
- Pay More Than The Minimum Amount Due: Paying an amount that is more than the minimum due prevents you from paying higher interest rates, saving you money.
- Pay Multiple Cards: If you have an outstanding debt on more than one credit card aim to pay the minimum on each card every month. And then use any extra money for paying off any one credit card in full. Ideally this should be the card with the highest outstanding. Making the minimum payments on cards with the lowest interest rates and maximising payments on the credit cards with the highest interest rates is a proven strategy to fend off debt over time.
Habits to Help Repay Credit Card Debt in The Long Term
- Budgeting: High credit card debt that never goes off is an indicator of bad spending habits. Review your monthly budget and any unplanned expenses. Categorise your monthly spendings under essentials and non-essentials and try to cut back on the non-essential spends. Use this saved money to pay off your credit card debt.
- Debt Planning And Prioritisation: Debt planning can save you much headache later on. Enlist your outstanding debts on a periodic basis and prioritise your repayments. Typically secured loans like home loan or car loan must stand at the top, while unsecured loans like credit cards follow. This can vary as per financial goals and financial status. Some people prefer paying off the high interest rate debts; credit cards definitely come under this category.
Repaying credit card debts quickly and regularly is an outcome of good financial discipline and an awareness of how the credit card system works. The best way of paying off credit card debt depends on the financial situation and willingness of the person to become debt-free.