Carrying a high credit card balance does not just affect your credit score, it eats up your finances. Higher credit card balances are subject to higher finance charges. This can make it more difficult for you to repay your balance. As your credit score takes a direct hit from this, you also lose the chances of getting approved for other credit cards and loans. If you’re approved, even with a high credit card balance, you may be approved at a higher interest rate than if you had a lower balance. Are you struggling with a high credit card balance? Here are three ways you can tackle it;
Give Your Credit Card A Break | Tackling High Credit Card Balance
To tackle high credit card balance successfully. The first thing you need to do is to stop using your credit card. Give your credit card a break because you will only be incurring more debts if you keep using the card.
From a mathematical standpoint, you’ll eventually pay off your balance as long as your total monthly purchases (plus fees and interest) are smaller than your monthly payment. Even then. It will still take longer to pay off your balance than if you just stopped using your credit cards.
Avoid relying on your credit cards for any purchases
Try to keep your spending below your income so you’re not forced to use your credit card to make ends meet. This may mean closing your credit card so you won’t be tempted to use it. Closing a credit card with a balance can affect your credit score in the short-term, over time. Reducing your credit card balance is better for your credit. Your credit score will rebound as you pay off your balance.
If you don’t want to close your card, but still want to keep it off-limits. Then you might have to cut it up. Get rid of the pieces and you won’t even be able to use your credit card for online purchases. Remove your credit card from any one-click billing services and set recurring subscriptions to your debit card or checking account.
Avoid having fees like late fees and return payment fees added to your account also helps you pay off your balance faster. You may not be able to avoid an annual fee, but you may be able to transfer the balance to a credit card that doesn’t charge the fee.
Transfer to a Lower Interest Rate Credit Card | Tackling High Credit Card Balance
A portion of each of your monthly payments will go toward interest in the form of a finance charge; thus, your interest rate plays a major role in paying off your balance. The higher your interest rate. The higher your monthly finance charges and the more of your monthly payment that will be applied to interest.
You can completely eliminate interest as a factor in paying off your credit card balance by transferring your balance to a credit card with a 0% interest rate.
Most major credit card issuers offer at least one 0% balance transfer credit card. When you qualify and move your balance to the credit card. You’ll enjoy at least six months of interest-free payments, possibly more depending on the credit card you qualify for. You can use this interest-free time to eliminate a large portion of your credit card debt.
If you have several credit cards with high balances, move the balance with the highest interest rate for the best opportunity for savings.
Make Bigger Payments
Making minimum payments is the worst way to pay off your high balances. Credit card issuers make you feel comfortable with making just the minimum payment. It’s all you need to pay to keep your credit card in good standing. You’ll avoid late fees and your account will be reported as current to the credit bureaus.
However, when you pay only the minimum. It will take the longest amount of time and cost the most interest. This is because a large portion of the minimum payment goes toward paying the interest on the account. So, your balance only goes down by a small amount. Also, because the minimum payment amount is calculated as a percentage of your balance, your payment goes down as your balance goes down. It gets easier to make the minimum payment, but still, only a small amount of your payment actually goes toward paying the account balance.
Tackling a high credit card balance requires that you consistently make bigger payments toward your balance. Want to know how long it will take to pay off your balance if you only pay the minimum? Check the most recent copy of your credit card billing statement. Credit card issuers are required to let you know the amount of time and the total amount you’ll pay if you only make the minimum payment. Your statement will also include the amount you’ll have to pay each month to pay off your balance in three years.
Once you’ve paid off your balance, make a habit of paying your credit card balance in full each month and you’ll avoid getting stuck with another unaffordably high balance.