Given that interest rates have been increasing and are very likely to continue increasing for at least the rest of the year, I want to ensure that all my money team is financially well off. So let’s talk about credit cards.
You know I got you! So let’s get into it.
Credit cards can be the best thing since sliced bread, all you have to do is take it out swipe, and make your purchase. You can use it online, in stores, and anywhere in the world. How convenient and great is that? I love my credit card. It also comes with some great benefits such as airline miles, and cashback, just to name a few.
I mean nothing compares to a free trip with your airline miles, right?
Even though credit cards are great, they also have the potential to be your worst financial enemy, if not managed properly, because it attracts a high-interest rate if not paid off in full monthly. Making it seem impossible to get rid of the credit card debt.
Especially with interest rates going higher across the world, you want to make sure you keep your credit card debt in check.
Let’s look at how credit card debt can trap you:
You spent US$1000 on some new clothes and shoes; they were on-trend you just had to get them.
Your credit card bill arrives and you pay the minimum payment of US$25.00, leaving a balance of US$975
Next month your credit card statement comes and you now owe US$1007.50
What? How can owe more than I paid down, that’s not possible? Unfortunately, it is, because the interest rate is so high, so you actually pay more than what you borrowed (or the amount you swiped your credit card for)
Now, you can see why it can be so hard to pay down credit card debt. If you only make the minimum payment, you’ll never make a real “dent” in the debt. And if you keep using the card while carrying a balance that debt will only increase. This is not what you want if you are trying to pay down or get rid of credit card debt.
Here are some actions you can take to pay down debt:
1. Pay off cards with small balances first
Paying off smaller balances is easier and more digestible by your pocket. Once you have paid off the cards with the smaller balances, you can work your way up to tackling the credit cards with larger balances.
2. Pay off cards with the higher- interest- rates first
Higher-interest-rate cards cost you more if you do not pay them off, plunging you deeper into debt.
3. Pay more than the minimum monthly payment
Paying the minimum monthly payment results in you taking much longer to pay off your debt and paying more debt. Every month you do not pay off your credit card balance, interest charges are added to your balance, ultimately increasing the amount of money you owe.
4. Put extra cash towards paying down your debt
If you have extra cash in your monthly budget, apply it to paying down your credit card debt. There is no penalty for making bigger payments to pay down debt, only advantages.
5. Stop using your credit card
Put away your credit card, if you do not have access to it, you can’t swipe it. Also, use cash to make your purchases, until you have paid off your credit card and have learned how to use the card to your advantage.
Less debt means having more money to invest in your portfolio towards building your wealth and securing your future.