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How to Get Out of Credit Card Debt
At one point in time, a vast majority of people will experience the dread that is credit card debt. While it’s not enjoyable, there are lessons to be learned and tools to utilize to get out of that debt. Even though there are tools provided, they have to be used in the correct way. Here are some of the most common ways to get out of credit card debt.
Evaluate Finances
You should begin by creating a list of everything that you owe. This list should include credit card debt and any other monthly bill such as the electric bill, auto insurance, or the cable bill. Included with your credit card debt should be the balance and APR for each of your credit cards. Seeing each cards APR will allow you to take a step back and assess which payoff strategy will work best for you to reduce your debt. The next step would be to compare your debt to your income. This will help you prioritize your spending.
Prioritize Spending
Once you’ve gotten a better look at your financial picture, you can see which areas you need to pay attention to most when it comes to spending. You should be covering your basic needs first such as housing, food, gas, etc. After that, pay at least the minimum on your secured credit lines. Then you can focus on your unsecured credit lines. While you have your financial picture in front of you, it would be a good idea to consider in your student loans as well. This helps you set up a strategy to pay off your debt.
Set Up a Strategy
There are three methods to paying off your debt known as the avalanche method, the snowball method, and the blizzard method.
- Avalanche Method
This method involves paying off the debts with the balances with the highest interest rate first. This is done to erase your debt as quickly and efficiently as possible. You would pay the minimum on your cards with the exception of the one with the highest APR. You would pay the minimum plus any extra you can afford on the highest APR. This is to eliminate the debt as quick as possible.
- Snowball Method
This method is similar to the avalanche method but it involves paying the cards with the smallest balances off first. You would make the minimum payments on all cards and any extra payment you can afford you would make on the card with the smallest balance.
- Blizzard Method
This method actually combines both of the previously mentioned methods. You would start by paying off the smallest balance first and then paying off the highest-interest balance.
If these methods don’t appear to help you, there’s always the option of seeking help in the form of a credit counselor. People can and do get out credit card debt. It just takes a little more effort than some are willing to put forth. In the end, the effort is a much bigger reward when you get out of debt.
How Credit Cards Work
Credit cards are often difficult to master. Each credit card company has different rules, interest rates, requirements to gain credit, etc. Unfortunately, during our formative years, we aren’t really taught how a credit card works or how to use one responsibly. This simple guide to credit cards will give you the basic information you need on how they work.
What exactly is a credit card?
A credit card, at a base level, is a plastic card. That card connects to a credit account that supplies a credit card user with a set amount (known as the limit) of money they can spend for purchases. For example, a credit account could have a credit limit of $2,000. That means the credit card user has $2,000 of credit to spend on purchases. At the end of a monthly cycle, the credit that was used by the credit card holder will be their balance. If that same credit card holder spent $1,400 of their $2,000 credit limit, their balance would be $1,400. Each credit card company is different in terms of minimum payment required on a monthly balance but, for this example, let’s say the minimum payment is $400. The card holder would have to pay at least that $400 to be considered in good standing with their credit card company. The remaining $1,000 balance would then be subject to an interest rate. This becomes important because, as a balance remains, there is interest charged on that balance. In the long run, a credit card holder could end up paying more than they actually charged on their credit card because of interest rates and fees assessed to their balance.
What are the different types of credit cards?
- Unsecured
An unsecured credit card means that there is no deposit required to secure the line of credit. Each time a card holder uses this type of credit card, the company backing the card is extending credit with no requirement of collateral. These are the most common types of credit cards.
- Secured
Secured credit cards are credit cards that the company backing it requires a deposit to extend credit. This would mean that an applicant, if approved, would have to pay a set deposit (usually around the $250-$500 mark) to obtain credit. This deposit will also serve as the limit for the credit card user. These types of credit cards are best for those with no credit or those who are rebuilding their credit. Over time, if the credit is used responsibly and payments are made on time, a credit card holder may increase their limit by providing an additional deposit.
What’s the best way to pay off a credit card balance?
There are varying opinions on how you should pay your credit balance. The most popular is that you just pay the balance in full every time. This is to avoid the interest fees that accrue on top of your remaining balance.
Through education, you should be able to gain a firm grasp on what a credit card is. Having this foundation of education will help you responsibly use a credit card should you choose to apply for one.
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