Because credit card debt is difficult to clear when balances are high and spread out over multiple accounts, it can be challenging to make monthly payments only when paying the minimum requirements. This guide will show how to get out of debt faster than slowly chip away at a card balance. Additional tips for managing credit cards will also be available to create the best game plan for eliminating debt.
Credit cards are known as a “revolving” type of credit. They provide access to several thousands of dollars of credit that can be borrowed against, usually on an as-needed basis. Each month, a minimum payment is due to equal to a small percentage of the current balance owed.
Herein lies the primary concern of credit card debt: payments are unpredictable. The more charged on cards, the more must be paid each month.
For most, credit card debt is easy to manage when the balances are low. But when the balances get high, the bills eat away at income, leaving less money to save and cover emergencies. It is a cycle where users live from paycheque to paycheque, and every emergency expense goes on a credit card.
Credit cards also have higher interest rates than most other forms of loans. Since these interest charges are applied monthly, the rapidly accumulating interest can quickly become more than half of each payment, meaning it takes a long time to pay off a balance with minimum fees. A high balance can take years or even decades to pay off. Even if a user pays more than the minimum payment, it can be challenging to get ahead.
For instance, let’s say someone owes $1,000 debt on a credit card with 19 percent interest. On top of that, the minimum payment is three percent, meaning a user pays three percent of the balance each month.
If only minimum payments are made:
Since paying the monthly minimum will not resolve debt, here are more effective ways to remove credit card debt and remain financially healthy:
It’s challenging to know which option is best for getting out of debt. This is because debt and budget affect, and are affected by, personal financial goals. For instance, some options, such as bankruptcy, may be faster at getting one out of debt than others, but they may also cause more damage to credit rating or assets.
Choose the option that eliminates debt quickly, with minor financial damage possible. Thus, it is ultimately best to consult with a financial advisor on the matter. These experts will provide experience and expertise.
There is no doubt about it: credit cards can be a handy financial tool when used correctly. However, they should never buy items that the user cannot afford to pay off in full. Use it only for major expenses; for the rest, use cash. This practical advice will keep finances healthy and debt away for good.
Pay off credit card debt with Debt Helpers, a firm that offers customized solutions for all Canadians through a range of consulting services and debt solutions designed to help customers reach their goal of becoming debt-free.