When you’re shopping for a new credit card, it can be easy to be enticed by special offers. For example, you might come across a new card that offers a lower interest rate for the first six months with an excellent reward points system that provides double or triple points when you shop at certain stores. It may be appealing, in theory, to earn while you spend.
But, it’s often easy to forget that once this initial period is over, the rate may significantly increase. So before you sign up, ensure that you will be financially prepared to pay the credit card bill on time. And if you aren’t certain that you will be, then it might be worth considering other options, such as a low-rate credit card without the bells and whistles.
If you do accumulate a significant balance on your credit card, you may be at risk of falling into a debt trap. By paying only the minimum amount due the balance will continue to increase along with interest, eventually resulting in what is likely to be unmanageable credit card debt. The following tips should help you to reduce your credit card debt.
Pay the bills regularly and not just the minimum due amount
The best way to reduce credit card debt is to pay the bills on time in full rather than just paying the minimum amount due. When you pay only the minimum due amount, you’ll pay interest on the balance, which results in increasing debt and increases the total interest payout. If you do find yourself with an accumulating balance, best way to stay on top of credit card debt is to make a monthly budget listing out all of your expenses and checking the amount that you can set aside to repay the debt. Once you know how much you can afford to pay each month, consider setting up an auto-debit facility for the bill payment to ensure you stay on track.
Debt consolidation with a personal loan
Debt consolidation means combining a number of debts into a single loan from either the same lender or a different one altogether. It can make it easier to manage your finances, and often, you’ll be able to access a lower rate of interest that may help lower your monthly outflows. Don’t be tempted to spend more, and instead use the opportunity to adopt good money management practices to ensure you can reduce your debt faster. Don’t forget to check the establishment or application fees before consolidating your debt.
Opt for a zero per cent balance transfer credit card
A zero per cent balance transfer card allows you to shift your existing debt to a new card without any interest during the introductory offer period. This will enable you to save money on interest charges during this period, which can be used to repay the debt faster. Moreover, a single account can also help you avoid paying duplicate account and administrative fees. But, remember to pay the entire amount during the introductory period to avoid the typically higher interest rate at the end of the offer duration. To calculate how much you need to pay each month, simply divide the total outstanding balance by the number of months with the zero per cent interest offer.
Refinance your home loan
If you have equity in your home, you could consider refinancing your home loan to help get on top of significant credit card debt. Home equity is the difference between the current market value and the balance loan amount. The money you access through a home loan refinance can be used to repay your credit card debt. Often, you will be able to refinance your home loan at a lower rate of interest, which could save you money in the long-term. However, this is not a decision you should take lightly. There’s a chance you could be putting your home at risk by using the equity you have accrued, and you could face the risk of losing it if you default on your mortgage repayments. Weigh up the pros and cons and consider speaking to a financial adviser before making any decisions.
Credit cards can be beneficial when you are able to practise financial discipline. If you fall into a debt trap, don’t panic. Seek assistance from a financial expert, and learn how to reduce credit card debt fast to regain control of your money.