If you’ve been struggling with your credit card debt, then you’re not the only one with such a trouble. Actually, the mean credit card balance is above $15,000. There are a lot of ways to cut down your debt without having to sacrifice your credit score, and with the help of an effective repayment plan, you’ll become debt free sooner rather than later.
What do you mean by credit card debt?
To repay your debt, the foremost thing that you need to do is to understand, ‘how is it made?’. Suppose, in a month you’ve made purchases. By the end of that very month, your bank/creditor sends you a statement asking you for repayments for all the month’s purchases that you’ve made as well as those outstanding bills that you still need to repay.
Usually, there is a deadline of 21-25 days on most of the cards to pay off the balances. However, this repayment deadline varies amongst the creditors. Therefore, if you fail to repay them, then you’ll be charged interest along with your card’s APR (annual percentage rate).
This is divided by 12, times your outstanding credit card balance. The amount that is derived out of this calculation will be tacked up on your existing debts.
What should you know about your credit card’s agreement?
The major points to keep in mind are as follows:
- As per the credit card agreement, you can pay off minimum balance and overall outstanding balance owed, without flouting its terms.
- If you pay less than the minimum amount, then you’ll have to bear late fines and penalty interest rates (if any) that will be applied to all the new purchases that you make. In any case, paying less than the minimum flouts the credit card agreement.
- On the other hand, if you make extra payments that is lower than the overall outstanding amount, then you’ll be charged interest as per the set APR of your credit card. This amount is divided by 12 times of your overall remaining debt amount. The interest will be levied on your outstanding credit card balances.
However, the only way to avoid piling up on more debt on your existing balances is to repay them in full.
Reduce the amount of debt you owe
Here are some tips to put your money more towards becoming debt free:
- As soon as you’ve established an emergency fund that consists of at least three months expenses, use the remaining disposable money in your hand to pay off your debts. So, if you have a credit card debt at 20% rate of interest, then you’re, in reality, getting a guaranteed 20% return out of your investment.
- Make debt payments on the day of your salary or when you get paid. This you can do by setting up a recurring payment from your checking account towards your credit accounts. Basically, it will help you to avoid spending on items for which you don’t have the money to pay. Conversely, you can divert a certain amount out of your paycheck to a savings account that you’ve set up to repay your credit card balances.
- If possible, then try to find out some ways to increase your monthly disposable income. For that to happen, you may work part-time or take up extra work from your employer and earn some good money on the side.
Finally, you need to make a budget and stick to it always. Allocating extra funds for debt payments is the most suitable way to get out of the grip of your crushing financial obligations.
Author Bio: Benjamin Beckwith is a prolific financial writer associated with Debt Consolidation Care. He contributes his valuable posts to different financial communities, blogs and websites and loves sharing his views regarding the financial issues that are plaguing the country’s economy and he also offers practical solutions through his articles.