Credit cards (and the debt associated with them) have gotten a bit of a bad rap over the past several years – and it’s not entirely undeserved.
While the best credit cards can be used to earn travel or cash back rewards, if used irresponsibly, they can lead to an endless cycle of credit card debt that drains your bank account and prevents you from ever getting ahead with your money. But getting control of your credit card debt can be done – and it starts with the knowledge of how credit cards work, how to get a lower interest rate so you can pay off your debt faster, and permanently changing your relationship with your credit card so you never end up in the situation again.
Here are the three steps to get control of your credit card debt once and for all.
Learn how your credit cards work
Credit cards can help you pay off debt and earn points, but only if you know how to use them properly. Otherwise, you may get caught paying fees and sky-high interest charges. Start by reading your cardholder agreement, that long document that you received when you first signed up for your card. Learn what it takes for your interest rates to increase, and jot down important facts such as fees, minimum payments, and penalties. Keep this information on hand so you can quickly reference them and make sure not to violate your terms.
For example, did you know that if you miss a credit card payment, some credit cards will raise your interest rate? That’s why it’s important to make at least the minimum payment on your credit card, even if you can’t afford to pay it off every single month.
Get the interest rate down
If you are carrying credit card debt, you should prioritize lowering your debt’s interest rate as much as possible, because higher interest rates will impede your debt repayment progress. You have a few options to accomplish this.
First, you could consolidate your debt to a line of credit or consider refinancing your mortgage to move the debt to a lower interest rate. If you choose this route, make sure to lower the limit on your credit card so that you aren’t tempted to run up the balance again – which will land you in a worse position than when you started.
Second, you could move your debt to a low-interest credit card or balance transfer credit card. Transferring your debt to a product with a lower interest rate will allow you to send more of your money towards the loan principal, and less towards paying interest. If you choose a balance transfer credit card, make sure to read the fine print. These credit cards only offer their low-interest rates for a set period, and if your debt isn’t paid off by then, you could incur penalties.
Finally, you could call your credit card provider and ask for a temporary interest rate reduction. Be frank, explain your situation and ask if there is anything they can do for you.
Change your relationship with credit
Finally, negotiating a lower balance or transferring your balance to a different credit card will not help you if you continue spending beyond your means. If you don’t change your financial habits in a meaningful way, it’s only a matter of time before you find yourself with credit card debt again.
To get out of debt once and for all, you must adjust your budget so that you are no longer overspending. That could mean slashing your expenses or increasing your income, or both. Do whatever it takes to balance your budget and stop overspending on your credit card.
Once you have a balanced budget, you can start using your credit card again. At this point, it’s important to get in the habit of paying off your credit card balance every month. Regularly paying off your credit card is the key to staying out of debt in the long-term, and it’s the key to building a prosperous financial future.
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