Easy Tips to Manage Credit Card Debt
It's that time of year where a credit card statement in the mail can provide an unexpected shock. With all the expenses over the Xmas holidays & the costs associated with heading back to school, going to uni, & the restart of extracurricular activities. The credit card debt levels tend to sneak up.
Here at Focus we generally talk about tips and tools to help you avoid getting into debt, but in all reality at some point in our adult lives it is highly likely we'll experience some level unexpected financial stress.
So today we'll be covering off 4 tips on how to successfully manage credit card debt so it doesn't get out of control, & how you can keep any interest costs to a bare minimum.
1. Pay off your outstanding bill in full
Paying off your credit card in full is always the best option if possible. It will prevent any interest charges moving forward, & effectively resets your interest free period on your credit card.
However, we know for many this isn't always a viable option, so here's some other pointers in managing your credit card debt.
2. Don't withdraw cash from your credit card
Known as cash advances, withdrawing cash from your credit card will generally incur a transactions fee & on top of that you forfeit your interest free period. As soon as cash is withdrawn interest starts accruing immediately. Most credit card companies will calculate the interest on a daily basis then charge to your account at the end of each month.
TOP-TIP: Cash advances aren't just any physical cash you withdraw from an ATM or at a store. Transferring money from your credit card account to another account, doing a money transfer, and even using your credit card to gamble are all considered cash advances.
3. Search for a 0% balance transfer promo
If you're serious about clearing your credit card for good then it can be worth while investigating any balance transfer offers on the market. This is where you move your credit card balance to a new credit card provider with a 0% or low interest rate offer.
To make the most of these promotions it's important you do the numbers, and make sure you repay the full balance transfer within the promotional period. i.e. You have a $1500 balance, and are offered 0% interest for the first 3 months. Then you'd need to make sure you pay a minimum of $500 per month (without charging any new items to your card) in order to get the full benefit of the balance transfer.
4. Refinance via a personal loan
If you're needing a little longer to pay off your credit card balance then the interest free period offered by a balance transfer promo, then a personal loan is a good option. Personal loans via a reputable lender have lower interest rate charges than credit card providers (or any other after pay type options)
The bonus with a personal loan is that it also provides a more structured approach to repaying your debt. You will be required to make a set repayment on a regular basis either via automatic payment or a direct debit.
For those who have a home loan another option to clearing your credit card is to top-up your home loan. This can be an attractive option as home loan interest rates are less than credit card & personal loan interest rates. However, don't fall into the trap of adding $5k to your home loan, then opting to repay that $5k over the 20yr term of your loan. This will cost you more in interest costs in the long run, so make sure you repay it as quickly as possible.
All in all, if you're wanting to get out of the credit card debt cycle for good, without costing yourself the earth in interest costs - aim to clear that credit cards balance ASAP. With most credit card interest rates around 20% p.a the debt can very quickly spiral out of control & end up having a negative impact on your credit rating.
If you're looking for advice in getting your credit card debt under control then don't hesitate to reach out to one of the Focus team & we can advise you the best option for your personal situation.