Things You Must Know About Credit Card Debt
Wednesday, June 27, 2018, 6:00 PM | Leave Comment
Before making that dreadful credit card debt relief call to a debt consolidation company, better yet, before you get into credit card debt, know the inside outs of credit card management.
Whether you’re a conservative or liberal spender, chances are if you own a credit card, you’re at risk of credit card debt.
What is more, the only credit card debt relief calls you will ever need to make is the one you make to yourself before making a charge on your credit card.
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Stay Debt-Free
Staying debt-free is possible even when you use credit cards regularly. Don’t believe you can? Challenge yourself.
In the US, one-half of credit card users don’t carry a balance. They use credit cards as a convenience to pay for items and services while they earn reward points for their vacation.
The one difference between debt-free credit card users and the other half with credit card debt is that the latter don’t carry a balance. It’s already too late to worry about your balance when you receive the statement. The time to think about being debt-free is at the time of making purchases.
People treat credit cards as if they were income and overspend beyond their capabilities.
Don’t use your credit card as a revolving debt tool, instead, track your charges and cash flow on a daily basis.
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Use Your Credit Card As A Short-Term Loan
It makes sense to use your credit card to purchase big items, that is, as long as you repay in a short amount of time.
Suppose you pay $1,000 for a new bed. It’s okay to charge it on a credit card, as long as you’re not exceeding your credit limit and you pay it off in a reasonable time frame.
If you only pay the minimum 2% of the balance (which is a rule of thumb for most credit card issuers) at 15% interest, it will take you 150 months at $20 per month to pay it off.
Moreover, you’ll end up paying $2,396. That’s not how credit works in your favor. To reverse that scenario, make payments of $200 a month which is 20% of the balance. At an interest rate of 15%, it will take you six months to pay it off, and you will end up paying only $44 interest.
Have a repayment plan that works in your favor, once you know what you want, but before you make an official charge to your credit card.
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How Credit Card Affects Your Credit Score
Being debt-free while still using credit cards is the smart way for a better future. Why, your credit score will soar if you keep your credit card account balance under 30 percent of the available credit limit!
As close to zero as possible, is what many credit advisors suggest your balance should be. Making payments on time is also favorable to your credit history.
If you fall behind your creditor will report you to the three credit bureaus after 60 days, and it will pull your sores down. Instead, making that payment on time, even if it is only the minimum, will lift you back up in about six months.
Some people pay off their debt but don’t see their credit scores increase. That’s because your credit history dates back seven years. To undo adverse reports, you must make timely payments and carry a balance that is less than 30% of the credit limit for an extended period.
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Caution: Credit Card Debt Settlement
Okay, so you were caught between paychecks – or jobs – having to pay your bills on a card, and you got behind.
Alternatively, it snowballed for you when your car needed repairs, and you were again between paychecks. An astounding percentage of Americans live paycheck to paycheck.
The number of credit card settlements each year has soared at an incredibly high rate. So, debt consolidation and debt settlement are the two options most people turn to.
When settling your debt, it’s essential to have a cash fund available to leverage against your debt balance.
Before writing off debt and losing it all, credit card issuers will negotiate for a fraction of the debt. Start low and go as high as you can with the amount of cash you have at hand.
Offering a lump sum as a partial payment and negotiating a lower interest rate on the rest of the outstanding balance, is another option.
Transferring funds from one or more cards with high-interest rates into a new card with lower interest rates is also advisable. However, first, you must check what the fees for doing so are.
Credit card debt consolidation companies offer a variety of programs according to the debtor’s specific situation.
Whatever the program, the most critical factor to keep in mind is whether you can make the payments to satisfy the terms in a timely manner. In the case when things change, and your situation is different, making the necessary call to your lender on time will benefit you immensely.
Be a proactive credit card user and stave off negative credit scores by staying debt-free.
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