When used responsibly, credit cards can give you access to rewards (unlimited cash back, anyone?) and the funds needed to finance your dreams. How you approach paying off credit card debt can have a significant impact. Debt may sound like a scary word, but this term simply refers to the balance carried over on a credit card from month-to-month, or the amount you owe. This could be as low as $20 or a more substantial number. Familiarizing yourself with the common payment pitfalls will safeguard your finances both now and in the future.
Avoid These 5 Things When Paying Off Credit Card Debt
1. Forgetting About Interest
If you take one thing away from this article, it should be this: Always pay more than the minimum balance due. If you pay the minimum balance, the remaining balance will roll over to the next month along with accrued interest.
Interest can accumulate and make paying off debt both frustrating and less manageable.
2. Not Making a Budget
Before you tackle paying off a credit card, you should first form a plan. Planning starts with getting an accurate gauge on where you’re at financially, which is when a budget comes in handy.
If you have a hard time making a dent in debt, it may be because you’re only paying the minimum balance. Commit to paying your total balance every month. Where does this money come from? A monthly budget will help you determine this. You may need to cut some items – like a streaming service – or alter what you’re spending in some categories, like entertainment and dining out.
3. Shying Away from Help
You don’t have to go it alone. Addressing debt can be stressful, so lean on family and friends for emotional support. Professional debt management programs are also available to help you understand your options and provide guidance.
4. Focusing in the Wrong Areas
The average American has four credit cards.1 So chances are, you have more than one credit card balance to pay off. If you’re deciding which one to pay off first, go with the one with a higher interest rate.
Say you have two credit cards. Credit card A has a balance of $300 but an APR of 24.99%. Credit card B has a balance of $1,000 and a 0% introductory APR that’s still in effect. While credit card B’s balance is higher, you won’t have to worry about getting dinged with interest if you only make the minimum payment due. Once you pay off credit card A, you can focus more heavily on credit card B.
Tip: Did you know credit card rates are typically lower at credit unions than at banks? Enjoy this and fewer fees when you become a member.
5. Not Exploring Your Options
Keeping track of multiple credit cards is difficult, which is why some people consolidate their plastic into a balance transfer credit card with a low APR. Even if it’s temporary, it makes more sense to enjoy a 0% introductory APR for 12 months than to stick with a high-rate credit card and risk accruing interest.
There are fees associated with a balance transfer, so it’s important to determine whether the cost of fees outweighs any potential savings.
Right now, paying off your credit card debt may feel like scaling a mountain. The right tools and support will help you conquer the summit! General Electric Credit Union (GECU) believes you should live your life everyday worry free, and that includes being free of debt. Use our budgeting app to track goals (like paying off debt!), or reach out to learn more about a balance transfer.
1CNBC Americans Have an Average of 4 Credit Cards-Is That Too Many?