Raise your hand if this month's credit card bill shocked you.
Holiday credit card debt has officially caught up to us. I know the holiday's mean trying to make everyone gets what they want, because we love to see their smiling face when they open that "one" special gift. C'mon, let's face it though, now you are stuck with figuring out how you're going to pay off that ugly credit card balance that just keeps adding up.
So I came up with a list of ideas to help you out with the credit card debt, and then what you can do afterwards to have a healthy relationship with credit cards.
Tips on Credit Card Debt
Tackle the one with higher interest first. The reason why is because you want to get ahead of that interest on the balance. Credit cards are pretty much set up to never get paid off, if you don't believe me look at the first page of your statement. There is a lovely box that tells you how long it will take to pay off if you continue making the minimum monthly payment, I have seen this tell you that it can take up to 25 years depending on the balance. Does that sound like a great plan? No? Me neither, it doesn't sound great.
Personal Loan, not a debt consolidation loan, personal loan. This may be a little harder option but a good one. A personal loan is a fixed rate loan, and it has a light at the end of the tunnel. Instead of taking 25 years to pay off it can take maybe 7-8 years. The reason why this plan is harder is because a personal loan is increasing your debt at first. The funds usually go to you directly, instead of looking at each piece of debt and doing a controlled payoff. So depending on your debt to income ratio, this may be an option that isn't just yet available until the credit card balances are lower. Before applying for a personal loan, ask if they analyze the debt and look into controlled payoffs before making a decision on the debt to income. The other reason why I say not to do a debt consolidation loan is because a lot of debt consolidation companies will settle debt on your behalf, and that will get reported on your credit report. So instead of the account showing paid, it can either report that it is in a repayment plan or settled. So if you are going to look for a debt consolidation loan just make sure that you understand how it is going to be reporting on your credit bureau.
Another option, especially if the credit card rates are very similar or the same, look at the balances. Sometimes it's easier to tackle the lowest balance first, and then using those same funds to pay off the first credit card you can then start using them for the next card. This option is quite popular, why? Because you can see the impact fairly quickly as you are paying things off.
Now while you are paying these off, only spend on the necessities. The reason why I say this is because it will put more money in your pocket. Give yourself a thirty day challenge of no shopping. Only the necessities. You will be surprised by how much money you were spending when you do this.
This will help you build up your savings as well. I have two goals this year, a trip to Costa Rica and to buy a home. Despite the debt I carry in loans, I am able to still enjoy a vacation, and create a home because I have focused on spending less. I am putting money back in my pocket instead of retailers. The way I was able to get there is through the next tips, on how I built a healthy relationship with credit cards and how they built my score up.
Tips on Having a Healthy Relationship with Credit Cards
Use it in lieu of your debit card, but only for the necessities. When you are at the grocery store, instead of using your debit card, use your credit card, and then transfer the funds that you just charged from the checking account to the savings. That way when the statement comes you are able to pay off the full balance each month.
One one keep a small balance on it, why because if you think back to my post that explained how scores are made up, you will remember that the score gets made up by balances owed. So one of my cards, I pay down majority of it except for about $30. I am not worried about the INSANE interest that is being charged, because I am building my credit. I was always told credit is everything, so I treat it like gold, despite the interest I am paying it is worth it.
Quality over quantity. Don't jump at every credit card offer you get. The credit cards I have are with the banks I have accounts with besides my amazon one, I got the amazon one because of the 5% back. I was already spending the money on gifts and other things, might as well just pay it off each month and get the credit. One of the credit cards has a super high interest rate, I use it just a few times and then pay it off because of that rate, the reason I won't close it is because it has been open for over 10 years. I don't want that credit line to close, it's my oldest one, don't close the oldest line, once you close it, it stops reporting to the credit bureau, no longer reporting your great history.
Use it, credit cards has a large impact on your credit report. If you use your credit cards wisely, you can impact your score big time.
Now, don't get discouraged if it feels like you are in over your head. And don't take any quizzes that determine if you should claim bankruptcy, majority of the time it will tell you to do so. That's usually just the company trying to get your business. I have a crap ton of student loan debt because I'm an idiot, but I have all of my debt managed. I have my spending managed to where I am still able to have fun, and to where I am able to treat myself to a much needed vacation and a home.