You and debt are so over. You’ve just about had it with those endless piles of credit card bills and those hideous numbers that never seem to get any lower. It’s time to kiss that debt goodbye!
Getting rid of high debt will take hard work, willpower and the determination to see it through until the end, but it is doable. Here, we’ve outlined six steps to help you start crushing debt today. Step 1: Choose your debt-crushing method There are two approaches toward getting rid of debt:
Step 2: Maximize your payments Credit card companies are out to make money, and they do this by making it easy to pay just the minimum payment each month, thus really paying only the interest without making progress on the actual principal, thereby trapping millions of consumers in a cycle of endless debt. Beat them at their game by maximizing your monthly payments. Free up some cash each month by trimming your spending in one budget category or consider freelancing for hire and channel those freed-up or newly earned funds toward the first debt on the list you created in Step 1. Don’t forget to continue making minimum payments toward your other debts each month! Step 3: Consider a debt consolidation loan If you’re bogged down by several high-interest debts and you find it difficult to manage them all, you may want to consider consolidating your debts into one low-interest loan. A personal loan from Ingersoll-Rand FCU can provide you with the funds you need to pay off your credit card bills and leave you with a single, low-interest payment to make each month. Or, you can transfer your credit card balances to a single card with a low-interest or no-interest introductory period. Be aware, though, that you will likely get hit with high interest rates when the introductory period ends. Step 4: Build an emergency fund As you work toward pulling yourself out of debt, it’s important to take preventative measures to ensure it won’t happen again. One of the best ways you can do this is by building an emergency fund. Ideally, this should hold enough funds to cover your living expenses for three to six months. Start small, squirrelling away whatever you can in a special savings account each month, and adding the occasional windfall, like a work bonus or tax return, to beef up your fund. Step 5: Reframe your money mindset Sometimes, like when there’s a medical emergency or another unexpected and expensive life event, a consumer can get caught under a mountain of debt through no fault of their own. More often, though, there is a wrongful money mindset at play leading the consumer directly into the debt trap. As you work on paying off your debts, take some time to determine what got you into this mess in the first place. Are you consistently spending above your means? Is there a way you can boost your salary or significantly cut down on expenses? Lifestyle changes won’t be easy, but living debt-free makes it all worthwhile. Step 6: Put away the plastic Credit cards are an important component of financial health and the gateway to large, low-interest loans. However, when you’re working to free yourself from debt, it’s best to keep your cards out of sight and out of mind. You can set up a fixed monthly bill to charge one or more of your cards to keep them active, but only do this if you know you will pay off the charge in full before it’s due. Learning to pay your way using only cash and debit cards will also force you to be a more mindful spender. Kicking a pile of debt can take months, or even years, but there’s no life like a debt-free life. Best of luck on your journey toward financial freedom! Your Turn: Have you kicked a significant amount of debt? Tell us how you did it in the comments.
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Refresh your credit card knowledge
Understanding the way a credit card works can help the cardholder use it responsibly. A credit card is a revolving line of credit allowing the cardholder to make charges at any time, up to a specific limit. Each time the cardholder swipes their card, the credit card issuer is lending them the money so they can make the purchase. Unlike a loan, though, the credit card account has no fixed term. Instead, the cardholder will need to make payments toward the balance each month until the balance is paid off in full. At the end of each billing cycle, the cardholder can choose to make just the minimum required payment, pay off the balance in full or make a payment of any size that falls between these two amounts. Credit cards tend to have high interest rates relative to other kinds of loans. The most recent data shows the average industry rate on new credit cards is 13.15% APR (annual percentage rate) and the average credit union rate on new credit cards is 11.54% APR. Pay bills in full, on time The best way to keep a score high is to pay credit card bills in full each month — and on time. This has multiple benefits:
Brush up on billing There are several important terms to be familiar with for staying on top of credit card billing. A credit card billing cycle is the period of time between subsequent credit card billings. It can vary from 20 to 45 days, depending on the credit card issuer. Within that time frame, purchases, credits and any fees or finance charges will be added to and subtracted from the cardholder’s account. When the billing cycle ends, the cardholder will be billed for the remaining balance, which will be reflected in their credit card statement. The current dates and span of a credit card’s billing cycle should be clearly visible on the bill. Tip: It’s important to know when your billing cycle opens and closes each month to help you keep on top of your monthly payments. Credit card bills will also show a payment due date, which tends to be approximately 20 days after the end of a billing cycle. The time frame between when the billing cycle ends and its payment due date is known as the grace period. When the grace period is over and the payment due date passes, the payment is overdue and will be subject to penalties and interest charges. Tip: To ensure a payment is never overdue, it’s best to schedule a time for making your credit card payments each month, ideally during the grace period and before the payment due date. This way, you’ll avoid interest charges and penalties and keep your score high. Allow a minimum of one week for the payment to process. Spend smartly Credit cards can easily turn into spending traps if the cardholder is not careful. Following these dos and don’ts of credit card spending can help you stick to your budget even when paying with plastic. Do:
Don’t:
Using credit cards responsibly can help you build and maintain an excellent credit score, which will make it easier to secure affordable long-term loans in the future. Your Turn: How do you use your credit cards responsibly while keeping your score high? Share your best tips with us in the comments. |
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