Christmas and holiday shopping can be devastating to any home budget, as most families overspend throughout the holiday season. The average American household is projected to have more than $8000 in credit card debt. After all of the excitement and festivities have worn off, you should take charge of your household budget and expenses.
Unfortunately, revolving debt is one of the most significant yet manageable expenses for most individuals or households. The payments may not only limit your spending power, but they may also limit your financial possibilities for purchasing a car or a house.
To get out of the trap of credit card debt, you must first establish the best approach to pay down and eliminate your debt. The following are some ideas for paying off debt and improving your financial status.
• Gather Your Information – Gather your most recent pay stubs and credit card bills. Make a note of the creditor’s name, balance, interest rate, due date, and minimum payment for each card. Then put all of the minimum payments for each account together.
Do you have enough money left over each month after paying your mortgage, electricity, and other essentials to make the minimum credit card payments based on your disposable income? Also, keep track of how much interest you pay monthly and annually. This is the amount of money that is squandered.
• Make a Plan – Once you’ve created a basic budget that includes your income and debts, you can decide whether you want to consolidate your debt, begin reducing your debt by paying off the cards with the highest interest rates first, or begin reducing your debt by paying off the cards with the lowest balances first. Choose a plan that you can follow because no one knows your financial condition better than you.
• Debt Consolidation – Convert your revolving debt into a term loan. You will no longer be able to add to your debt if you close your credit cards after consolidating them. In addition, unlike minimum credit card payments, which normally only cover the interest on the outstanding balance, a portion of your payments will go towards reducing the principal balance of your loan.
As a result, you will be paying down your debt, and the consolidation loan should be paid off within a few years. If you have the financial means, you should make more than the minimum payment to reduce the main balance on your debt faster. If you decide to consolidate your credit card debt, research your options attentively and shop for an interest rate that is lower than your credit card interest rates.
Set up an automated payment plan for your consolidation loan as well. This will keep you from getting behind on your payments and may be suffering penalties and/or an increased interest rate.
• Debt Settlement – This is an alternative to filing for bankruptcy. If you examine your finances and discover that your monthly payments exceed your financial ability, you will need to seek alternative options, such as working with a financial institution to consolidate your credit, discussing your options with a bankruptcy attorney, or speaking directly with the credit card companies to reduce the principal balances owed on your debt.
• Stop Charging – Once you’ve made a plan to pay off your debt, you must commit to not charging on your credit cards or incurring additional debt until your finances are in order. Your plan will fail unless you cut your spending.
Taking charge of your finances may cause short-term challenges and limit your ability to acquire luxuries such as a new car, a new house, or a vacation in the coming years. Nonetheless, controlling your spending is critical if you want to better your finances and get out of debt.
You will have significantly more disposable money once your debt is paid off. Furthermore, you should have stronger credit scores and a lower debt-to-income ratio; as a result, you should be able to qualify for preferential rates on vehicle and home loans in the future.