Credit cards are issued by banks to the customers that enable them to purchase goods and services on credit and then later pay for them plus some charges that have been agreed upon. This type of debt actually carry the highest interest rates however, borrowers do have the option of paying every month so that they can get away from high long term payments.
Credit cards can be said to be a type of unsecured loan (the ones that are not pledged against any asset). They are issued to individual against their overall salary, credit ranking and some other conditions. At the end of each month, a statement of transactions showing details of purchases is delivered to every user who then has between 21 to 25 days to make payments. The statement shows a new balance and a minimum payment to pay. The minimum payment is the least amount of money, which can be paid to keep account running. However, to avoid accumulated money, it is always recommended to pay the total balance. However, individuals do not make perfect rational decisions and hence many end up being in credit card debt. At some extreme cases, they have to look for some extra ordinary measures to settle credit card debts.
Many steps need to be taken to deal with credit card debt. Firstly, it is important to set goals for yourself. This may seem like a cliché talk but you can just not underestimate the benefits of planning and setting goals. The secret to setting realistic goals is that they have to be S.M.A.R.T that stands for specific, measurable, attainable, relevant and timely. Once you have set the goal of paying a specific sum of money to overcome the debt you need to keep a check to see if you really are meeting the goals. Remember it takes time and self-discipline to pay them off.
Secondly, as much bad as it may sound but you really have to stop using your credit card. As further using credit cards while not clearing up your previous debt, is not at all a rational decision. Rather it will further worsen your condition. In addition, if you will start using cash to pay for your expenses this will help you differentiate between your needs and wants which will help you cut down unnecessary purchases. This leads to another important step mentioned below.
Thirdly, you need to cut down on your expenses. As the best rule is to save first and then spend what is left over. If you cut your expenses you will be able to get out of debt fast.
Fourthly, you should make a list of all your debts and prioritize them. Usually it’s better to pay off debts with highest interest rates first and then the rest. Priorities can be different for everyone.
Moreover, you can also avail balance transfer facility. In this case, one can transfer total debt payments from current financer to another financer. Most of the companies offer an interest free period as an introductory offer so the advantage can be taken which will ultimately decrease your expenses.
Furthermore, you can also increase your level of income by working overtime or getting more jobs. This way you have more money available that can be used to pay off debts. Other ways of earning extra income is online job, or maybe from inheritance.
Debt consolidation is another option that can be considered. Debt consolidation means combining multiple debts from cards to one monthly payment. There are many ways to do this. For instance, personal loans can be taken from the bank with lower interest rates to pay the credit card debt that has higher interest rates. Lower interest rates also mean that you have more money left which you can use to pay other bills. However, you also need to consider the length of that loan since if that’s long that ultimately means you are going to make higher payments. But it could help you protect your credit history.
Another way of getting loan is by pledging an asset against it (e.g. home). However, these types of loans have the most obvious risk; if not paid back you can lose your asset. When consolidating cards you should try to keep credit card balances low. Financial help from family/friends can also be taken as such money can come at very low interest rates making it easy to get out of the debt cycle.
Financial advices can be taken from companies that may at times provide you with the best possible solution. But you need to keep in mind that not all credit counselors have your best interests in mind.
