In a perfect world, we would all be living free of financial obligations. However, the world is far from perfect. Nowadays, there are more people than ever before who are struggling with different types of financial obligations, with credit card debt being possibly the biggest financial issue of them all. You may find the following information really useful, so let’s begin.
What is credit card debt?
Credit card financial obligations are an unsecured liability that is generated through a revolving short-term loan facility. Every single purchase that you make with your credit card creates debt. These financial obligations, however, normally do not generate any interest until their grace period expires. And so, those who are paying their credit card balances every month are not considered as people who carry credit card financial obligations. This term is meant for consumers who keep on carrying their credit card balances after the grace period has already ended and so, these balances are generating interest which makes them debts.
How bad is it?
Debt on credit cards, because of its generally high interest, is actually one of the worst types of financial obligations that you could be carrying. Most credit card companies often advise their customers to make only minimum payments on their credit card balances which ultimately makes things even worse as all these people are mostly paying interest, without even lowering their actual debt amounts. This is why many financial specialists recommend that people should do all they can to get rid of their credit card financial obligations as soon as they possibly can.
How to pay off the money that you owe
Getting rid of credit card financial obligations is not an easy job. You can find many different strategies, methods and financial tools to do it. Ultimately it all comes down to your specific financial situation and your personal capabilities. If paying off credit card financial obligations was an easy task, there would not have been people struggling with this particular type of debt. The fact that it is hard does not mean that it is impossible to achieve. There are many people who are regaining control of their finances and are able to reach financial freedom. Now we are going to give you some tips, repayment strategies and financial advice that can help you to significantly improve your chances of paying off the credit card money that you owe.
How to approach your debt repayment process
As we have already mentioned above, many people are not doing the best job with the way that they are approaching the repayment process of money they owe, which ultimately slows the repayment of their financial obligations down and makes it a lot harder than it could actually be. So we are going to discuss a common mistake that too many people are doing and why you should avoid it.
No more minimum payments
As mentioned before, many credit card companies often advise their customers to only make minimum payments on their credit card balances. This way, their repayment process will not affect too much of their monthly budget and they will be able to easily take care of all other living costs. While this may all be true, what these companies are not telling you is that by following this repayment strategy, you are barely touching your actual debt amount. What they are really paying with these payments is just interest and in the long run, this will get you nowhere. It would take a lot more time if you start making bigger payments. If you are not sure just with how much to increase your monthly payments, get the details of your last few payments and see exactly how much of your payment has gone to cover interest. Then what you need to do with your next payment is to surpass that number, and you will know that you are actually lowering the actual amount of money you owe.
2 ways to tackle your debt
To get better results, you need to be doing things with a certain purpose and a plan. You cannot expect to get the best results out of something if you are not really putting that much thought into it. Here are two ways that you can tackle your credit card financial obligations:
Start from the balance with the highest interest rate
The interest rate is probably your biggest problem when struggling with financial obligations. So it only makes sense to do all that you can to get rid of the credit card balance that has the highest interest rate. It is not going to be that easy to do since this approach requires you to focus most of your funds on the biggest bill. However, once you are able to pay off the money that you owe on this account, you will find each financial obligation that follows to be a bit easier to get rid off. Once you are done with the highest interest rate credit card balance, repeat the same formula with the next debts in line. While you are applying this repayment method, you should only make the minimum payment to the rest of your balances so that you can afford to focus most of your funds on your highest interest rate target.
Start from the one that has the smallest amount
This approach, as you may guess, is a lot different, but it still makes you focus on a specific financial obligation. Here, instead of targeting the balance with the highest interest rate, you will be focusing your attention the one with the smallest amount. What is the reason behind this? With this approach, what you are trying to do is to quickly lower the overall number of financial obligation that you have. By seeing the first financial obligations go down, the ones that follow will give you that much-needed confidence and momentum to go on until you are finally where you want to be.
Some things to think about
If you want to have the best possible result in your battle with credit card financial obligations, it may be a good idea to spend some time reviewing the actual reasons that got you in this position in the first place. People are doing a really poor job of managing their finances without even realizing it. However, finding out your mistakes and getting rid of them, improving your budget management skills, adjusting your lifestyle to your current financial situation, are all things that can have an important impact not only on your debts repayment process but also on your life after you have paid off what you owe. After all, your goal should not be just to pay off your financial obligations but to never end up in such situation even again.