Did you know that 74 million Americans have more credit card debts than savings? That is approximately a third of adult consumers in the country. The same report even revealed that only 2 out of 5 Americans have enough savings to cover a $1,000 emergency.
It is hard to assume that these consumers are having financial troubles. Maybe they are still doing okay and that they are still able to pay off what they owe. However, it is clear that having more debt than savings puts them in a vulnerable financial position. It does not matter if you are earning a 6-figure income. If you have more debts than savings, it is very easy to push you into a financial crisis. In fact, all it takes is one job loss. When you no longer have a steady source of income, you have so little to live on because you do not have enough savings. And on top of that, you have a lot of debts to pay off.
Obviously, you need to do something about your finances. It is not just about paying off your credit card debts. It is also about improving your financial security by giving your savings a boost. With the new year upon us, this is the best way for you to start anew.
Tips when you have more credit card debts than savings
There is a never-ending debate about whether you should save or pay off debt first. If you look at it from a logical point of view, it makes sense to pay for your debts first. It has a high-interest rate. So it is the one that is costing you a lot of money the longer it takes for you to pay it off.
But if you really want to secure your finances, you need to work on both your credit card debts and savings. At least, you only have to do them both until you have enough emergency funds. Once that is accomplished, you can focus all your extra money on your debt payments.
When you are already focused on your credit card debts, there are a couple of things that you should do to ensure that you can completely pay it off.
Take a look at all your credit card accounts
Start by looking at all the credit card accounts that you have. List all the accounts and include important information like the balance, minimum payment requirement, interest rates, due date, and even the fees and charges. This list should give you a perspective of what cards you commonly use. It is a chance for you to scrutinize each account so you can determine if some of them are no longer needed. Once you pay them off, you can close these accounts. It will keep you from using the cards and maximizing the rewards on those that you can use.
Review your budget plan
After looking at your credit card debts, it is time for you to determine how much you can afford to pay each month. This means you need to look at your budget plan. Is your budget still aligned with your current financial situation? Maybe there are expenses that are no longer needed or there are new ones that you need to add? For sure, you need to make changes with your debt payments.
It is important for your budget plan to be updated because if not, it can easily confuse you. There is a higher chance that you will forget some payments. If you forget, that can lead to unnecessary fees and charges that will increase your balance. So keep going back to this budget plan and make sure it is always updated.
Choose a debt consolidation strategy
Finally, you need to choose a debt consolidation strategy that will make it easier to pay off your multiple credit card debts. Sometimes, money is not really a problem. You can afford to pay your dues. However, the number of accounts that you have to pay makes it hard to stay on top of everything. But when you consolidate debts, you only have to track one monthly payment. If you choose the right strategy, it is even possible for you to lower your interest rate so you can save money on the whole debt. Not only that, some debt consolidation strategies will allow you to lower your monthly payment requirement. This will give you enough room in your budget plan to increase your savings.
How to make your savings be more than your credit card debts
As you are paying off your credit card debts, it is important for you to think about how you can increase your savings. You need to make sure that your savings will always be bigger than your debts. You do not have to stress yourself too much. It is understandable that it will not happen overnight. But if you work on it consistently, you can achieve your goals.
So how can you make sure that your savings will always be bigger than your credit card debts?
Identify the cause of credit card debts
You have to know more about your debt situation first. Identify what caused you to accumulate so much debt in the first place. Was it because of overspending? Or maybe it was caused by a medical emergency? Maybe your income is no longer enough to pay for your needs after you had children? These can be valid reasons for you to have so much credit card debt. You need to deal with this if you want to maintain your debt freedom. Otherwise, your debt will always grow bigger than your savings.
Set a savings goal
It is also important for you to set a realistic savings goal. Start with your emergency fund. Make sure that you have enough to live on for 6 months. This way, even a job loss will not push you to use your credit card for basic purchases. At least, it will give you enough time to find another source of income.
When you have enough emergency funds, do not stop there. Find another saving goal. It can be a small one like a vacation for the family or with friends. Or it can be a more ambitious one like saving for the down payment of your house? Having a savings goal will help secure your future and at the same time, keep you from unnecessary spending.
Lower your spending
As you are growing your savings, it is natural for you to lower your spending. According to one survey, a third of Americans admitted that they lowered their spending the past year. One of the reasons is debt. To accommodate both savings and debt payments, you need to make a decision to cut back on some expenses. If you used to eat out a lot, you should stop doing that and reserve it for special occasions. Start cooking your meals from scratch. Be more energy efficient so you can lower your energy bills. There are so many areas where you can lower your monthly expenses.
Earn more money
Finally, you can also opt to earn more money to help save money while paying off credit card debts. There are many ways for you to do this without causing yourself too much stress. You can ask for a raise at work. You can also set up a passive source of income. There are several freelancing opportunities online. Find a niche that you are good at and capitalize on that. You might be surprised at the amount that an additional source can give you each month. Not only that, but this can also make your finances more secure. In case something happens to your day job, you have this second source of income to fall back on.