Credit cards offer a great many benefits; from offering financial protection during costly transactions to providing a little more flexibility over your spending habits, they are a valuable addition to any wallet. The trouble is, with more than 45% of Americans currently experiencing credit card debt, it’s clear that many are still struggling to balance that additional financial freedom with a realistic budget.
Part of the issue, of course, lies in the abstraction of credit. It can be difficult to approach our credit cards in the same way that we approach cash, as we cannot see the transaction taking place – and the same goes for our credit card debt. Instead of getting a hold of the situation, many continue to make the minimum payments each month, and wrack up thousands of dollars’ worth of interest as a result.
Read more below about why – and how – you should get proactive about your credit card debt.
There is an Alternative
What many borrowers don’t realise is that there are plenty of options available to them, aside from simply paying off the smallest amount possible each month.
One of the most effective measures you can take is to consolidate your loans, effectively bringing them all together under a single interest rate, and repaying that loan through monthly instalments rather than the original balances. The best credit card debt consolidation loans will enable you to pay less each month, put money towards your savings, and to finally get your debt – and credit score – under control.
Minimum Payments are Costing You More Than You Think
Depending on the severity of your debt, it can take years to pay off your credit cards and rid yourself of that long overdue balance. Even a debt as low as $2,000 can take decades to pay back through minimum payments alone – and it can have a severe impact on your credit score, too.
If you are worried about money, it’s incredibly easy to lead yourself to believe that ignoring the issue, making those small payments each month, and simply avoiding taking on any new debt, will be enough to keep your head above water. While it may be hard, taking a stark look at your finances and debts and working out an effective solution will all pay off in the long run – and it will circumvent the need for those late-night panics over the balance due.
Credit Card Debt May Be Compromising Your Financial Future
One of the primary factors that goes into calculating your credit score – a number, typically between 300-900, which lenders use to ascertain your level of risk as a borrower – is your ability to utilise credit. While making only the minimum payments on your balance will not necessarily harm your score, having a high credit utilization (the ratio of your balance to your limit) will reflect poorly on your score.
A good credit score will bring many benefits as you go through life; from seeking a mortgage to securing the most competitive interest rates on auto loans, managing your debt now is an excellent way of ensuring that the future looks bright for you and your finances. Lowering your credit utilization will help to give your credit score a boost, and help you to demonstrate better habits to future lenders and creditors.
Credit card debts are one of the easiest traps to fall into, and the fact that creditors accept exceptionally low repayments can only serve to lull us into a false sense of security, and spend thousands on interest alone over the years. Fortunately, it is entirely possible for you to get out before you let the cost of repayment spiral – and to take on some better practices with your credit cards. Doing so will not only help you now, but in the future.