Many of have been there, many of us are still there – never-ending credit card debt that never seems to go away, however hard you try. You use introductory offers, you move money between cards, but the debt never goes, hanging over your head all the time. A common scenario, but is there a way to beat this vicious circle? What’s the key to eliminating credit card debt?
With discipline and planning, there may well be solutions. Eliminating credit card debt is possible for anyone, whatever your situation. Moolr are here to help.
When people have a high level of debt, it is often harder to start chipping away at the debt – once that start has been made, a big hurdle has been overcome. Frustration and despair are natural feelings when you feel that you are fighting a losing battle, but debts can be erased by anyone, credit card balances can be reduced, if you take the right steps.
The first steps? Sit down. List your credit card debts, both the amounts and the minimum repayments. List the interest payments for each card each month, as it currently stands. These details will give you the basis for prioritising your debt, a crucial early step in reducing it.
A logical step is to target the card that is costing you the most money each money, dead money via interest payments that mean that even though you make repayments the debt barely decreases, if at all. It might seem obvious to say it, but if you have £2000 on a credit card attracting no interest because of an introductory card offer, and £300 on another card attracting an APR (annual percentage rate, the interest you pay annually on a debt), then the card with the £300 on it is the one that should be prioritised for repayments.
If you can pay more than the minimum payment, then all the better, as the more you pay, the less the interest will be the following month – if necessary make sacrifices elsewhere in your life to make paying off such accounts as soon as possible.
And once you have paid off the card with the highest interest, then move onto the card with the next highest interest payments – this might seem like obvious advice, but you’d be surprised how many people ignore this tactic.
Eliminating credit card debt does not mean your life should be devoid of enjoyment! Everyone needs rewards in life, however occasional they may be, and as long as they do not bite into your plans too much, they can be a very useful motivational tool to help you reach a debt-free future.
And if none of the above worked? Well the best advice I can offer is to never feel too embarrassed to face the battle with a bit of help. If you feel overwhelmed by debt, seek help. There are many trained financial advisers who can help you through the pitfalls of paying off multiple debts. Use all the tools available to you. Eliminating credit card debt is about balancing the books, and the odd sacrifice.
There are different rules for different people, so advice will invariably differ depending on individual circumstances. People build up debt due to various circumstances. Some are compulsive shoppers, sometimes triggered by stress. Some simply live beyond their means, unable to budget on a low wage.
If you are addicted to shopping for example, you could cut up your cards so that they cannot be used again, thus leaving just the existing debt to repay. Another tactic is to replace the need to shop with another, free activity that has a similar effect in reducing stress.
A separate tactic is to look back and reassess. Look at what you have spent in the past and evaluate what was necessary spending, what wasn’t. Without assessing your past spending patterns, you might not be aware of just how much money you have unnecessarily spent. This is a habit that needs to be eradicated, or at least massively reduced.
If you evaluate your expenses, I guarantee that for most of us there will be something we have overlooked or not realised its extent. By expenses, I mean everything that comes out of your account, so that includes rent or mortgage payments This includs all vehicle costs, vacations, food and drink, entertainment expenses, taxes, club memberships and more. Eliminating credit card debt is naturally easier when you have fewer outgoings.
The truth is that most of us can cut down on these expenses. A cheaper TV deal for example would be a good place to start and many a membership could be ended without too much hardship. Look for a cheaper gym, miss a holiday, switch energy providers – there are options available to us all. With a plan in place, the steps you take need to be repeated on a monthly basis. You should never stop working at improving your budget.
But most importantly of all, don’t give up. There may be stumbles along the way, there may be mistakes, weak moments, but the important thing is to keep going. Reach that goal. It will be worth it. Eliminating credit card debt may be a long journey, but keep persevering.
Having a good credit score is something that millions of us worry about regularly, the fear that a bad score could severely limit our ability to obtain credit and dent our many plans. It’s a legitimate fear, as a poor credit report could prevent you financing a home. It could attract higher, prohibitive rates for financial products and even affect job prospects. Having a low credit score doesn’t have to be a permanent state of affairs, with any score repairable, over time.
The first step is to obtain your credit report, so you can see exactly what the situation is. Pinpoint how things could be improved. If you haven’t done so within the past 12 months, you can obtain a free copy of your credit report from each of the major agencies (Equifax, Experian, etc). Having obtained the report, check it very carefully. The reason for this is that there could be errors contained within the report. They may be obvious errors, such as an outstanding debt that you have in fact paid off. It could be something as minor as a misspelled name or address.
Any error you find should be reported to the credit agency. Provide supporting evidence to help the agency deal with the error. Once the error has been corrected (and this can take between 1-3 months), it could be well worth your while requesting another free report to ensure the error has been removed. Take action. Sort your problems, do not turn a blind eye. Be proactive, and demand a brighter future. Seek peace of mind, and happiness.
Once you have the report, analyse where you can repair any poorly-rated areas. Add up what you pay each month to see if a pattern emerges of bad behaviour. You can use this information to attempt to improve such behaviour. Basically, if you have a bad credit score, it’s a case of working out why it is “broken”, and then fixing it. It could be one bad episode or incident, such as a bankruptcy, or you could, as many do, have underestimated the amount of debt and credit you have accrued.
So how to improve your rating? There’s no quick fix, so ignore companies that claim there is. What is required is diligence over time, and if you do the right things, then your rating will gradually improve. Patience is key.
The main thing you can do is simply pay your bills on time. This is a major contributory factor in determining an individual’s credit rating, counting for 35% of your score. The biggest single factor in fact. Failure to make a payment leaves a negative footprint on your credit report for a long time. If you have one late payment in an otherwise perfect report, then it could be worth asking the creditor for it to be removed as a courtesy. A number of missed payments will naturally portray a negative image to potential creditors.
The next step is to use credit sparingly. Credit is good for a score, as lenders want to see activity so that they can judge how reliable you are. Like most things in life, credit is only good in moderation. Having numerous credit cards all maxed to their limits, for example, does not portray a positive image to potential lenders or help your score. One of the factors in a credit score is your “utilization ratio”. This is the percentage of your credit line you actually use each month compared to your total credit line.
If you need to improve your score and have cards with no balance on them, the temptation for many is, understandably, to close down the cards. Many experts will advise consumers to do. However, it may not be the best plan of action if repairing your credit rating is a priority, with older accounts. These accounts can actually help improve your score, as it shows a long-standing credit relationship. If you are deliberating over which accounts to close, go for newer ones first.
If your credit rating has prevented you from any cards in the past, you should look at some point to get a new card once your rating has improved a bit. Using these cards responsibly and making payments on time will boost your score further. The key word is “responsibly”. Spend what you can afford to repay and do not max out your card(s).
We advise you take this action if it is sensible, and can be budgeted for. A loan, such as 24 month loans or 36 month loans can actually be cheaper than paying interest on numerous cards each month. One loan is also easier to manage. Only proceed if you are confident in making timeous monthly repayments. Eliminating credit card debt may mean moving debt to a method with lower monthly repayments.
Eliminating credit card debt takes time, so it takes patience too.