Do you have a high credit card balance? Reports reveal that 120 million people in the country have credit card debt. Are you one of them?
If yes, then you might want to work on that as soon as you can. Having a lot of debt is bad enough. But credit card debts? It’s not the type of debt that you want to owe a lot of money on. Why? Because of the high-interest rate. If you can’t pay the balance in full, you have to deal with the finance charges that will be added to your current balance. This can make your balance go up quickly and it’ll cost you a huge amount of money.
Before you can work on paying off your high credit card balance, let’s figure out what’s causing it. Because if you can figure that out, you can stop the cause of debt at the source. If not, you might end up paying this debt while the source continues to add more to it.
3 causes of your high credit card balance
Without a doubt, paying off multiple credit cards is tough. But don’t think that using this is pure evil. It’s not. In fact, using credit cards can be very useful and convenient to use. You can really get a lot of benefits through it. But you have to learn how to use it properly. If not, it can compromise your personal finances.
You see, credit cards can be helpful or destructive depending on how you choose to use it. So one of the first things that you need to do, to keep these cards from ruining your personal finances, is to learn how to use it properly.
Part of that is to understand what causes you to keep having a huge balance on your credit account.
You’re paying various credit card fees
Apart from the high-interest rate, you also have to deal with various fees and charges associated with owning a credit card. This is one reason why your debts don’t seem to be going down. You have to familiarize yourself with all the fees and charges that your creditor is asking from you. Make sure paying these fees are worth it.
You should also be wary of credit cards that you do not use. These may still be accumulating charges and fees. If you don’t plan on using these cards anymore, you’ll just be wasting money paying off these charges. It may be best to just close the card. Don’t just ignore it. Because these fees may accumulate over time. Before you know it, you’re getting a collection notice because of the unpaid fees that grew without you knowing about it.
You keep making unnecessary purchases
Another cause of your high credit card balance is your inability to stop yourself from making unnecessary purchases. There are those who are really impulsive buyers. These are the ones who can’t help but to buy even if they can’t afford it. When they see a sale event, it doesn’t matter if they don’t need an item. They will buy items because they feel like they are saving money on the purchases. And since these are unplanned expenses, they usually end up using their credit cards.
This is a huge mistake. You have to be a smart consumer if you want to stay away from a high credit card balance. That doesn’t mean you have to stop using credit. You can still use your credit cards. But you have to learn how to use it properly. Unless you learn the right habits, you need to keep your credit spending under control.
Start by planning how you’ll spend using your credit card. Set a limit. If your monthly budget can only afford to pay $500 on your credit card, make that your limit.
You’re only paying the minimum requirement
Finally, you continue to have a high balance because you continue to stick to the minimum payments. The truth is, paying the minimum requirement is enough to keep the debt collectors from bothering you. But this will keep you in debt for a very long time. It will also make you pay a huge amount of money on interest.
Every time you pay only the minimum requirement, you are only chipping away at a very small part of your real debt. Whatever is left will be used to recalculate the finance charge that will be added to your current balance. This will keep happening as long as you stick to the minimum payment requirement. You will never get out of a high credit card balance unless you pay more.
How to keep your credit card balance low
Now that you know what can cause your credit card balance to remain high, it’s time to know what will help you do the opposite.
Admittedly, this might be a bit hard to do especially when more Americans have started to rely on credit cards because of the COVID-19 pandemic. You can’t really blame them. As the year ends, people have gone through so much in a couple of months. From the lockdowns, a health scare, recession, unemployment – there’s just so much going on. Even those who started with sufficient emergency funds have probably depleted it by now.
But that doesn’t mean you can’t be careful. There are things that you can do to avoid having a high credit card balance.
Here are two tips you can follow.
Choose your credit card purchases
If you really need to use your credit card for purchases, make sure you choose what you spend on. Don’t be reckless about it just because you still have enough credit limit. Stick to what you need to survive. Any extra expenses that you can postpone or live without, don’t use your credit card on it. Wait until your finances are in a more stable position before you make unnecessary expenses.
As you plan your credit card expenses, make sure you align it with your budget. That way, you’ll know how much you can afford to spend each month.
Pay more than the minimum
Whenever you use your credit cards, make sure you can afford to pay more than the minimum payment requirement. As mentioned, if you stick to this payment method, you’ll stay in debt for a very long time. If you know you can afford to pay more than the minimum, keep your credit spending low. Stay away from big purchases if you can. It’ll just start a problem that will cause you stress. If it’s really needed, then study your budget plan and see where you can cut back on expenses. If you can earn more, that would also be ideal. The more you can pay off your credit card balance, the faster you can free yourself from the clutches of debt.