Yesterday’s post on car repair loans got us thinking about credit cards and financial situations in general. We come across a number of clients who have maxed out their credit cards and use auto loan refinancing or auto equity to pay everything off.
That’s not the only way to go, so we thought it would make a good blog post. We gave the task to our Rockton auto loan team to put together some actionable tips for managing credit card debt.
Never rely on minimum payments
Minimum credit card payments are merely a way to maintain a positive payment history without missing a payment. They are not a way to manage credit cards. Even a small debt could take years to settle if you only paid the minimum amount.
For example, $2,000 outstanding on a credit card at 19% interest. A minimum payment of 2% would take almost 38 years to pay off and cost you over $4,500 in interest!
Pay off in order of interest rate
If you have maxed out more than one card, pay off the one with the highest interest rate first. Don’t worry about which you owe more on unless the card interest rates are similar.
If you have a cheaper card and a card with higher interest, prioritize the higher interest first. If the interest rates are similar, work out which is going to be more expensive, the larger balance or the slightly higher rate. Pay off the most expensive first.
Set a spending freeze
If you have maxed out your cards, you need to stop using them. You should minimize spending as much as possible and use whatever money you have left over each month to pay off the cards.
Every cent you can spare should be sent to the most expensive credit card with the highest interest rate. Pay off as much of your debt as possible, as quickly as possible.
Make some cutbacks
If the spending freeze isn’t enough, consider making some cutbacks. Simple things like making your own lunch instead of buying it, going discount grocery shopping instead of your usual, not buying coffee when you get gas and other small changes can make a big difference.
Put all the money saved into the credit cards and you should begin to see those balances reduce.
Supplement your income
While not possible for everyone, taking on an extra shift or working overtime can make a big difference. As can gig work like being an Uber driver or Deliveroo driver. Anything you can do to earn a little more money can help reduce the amount owed and the stress that comes with it.
Even an extra couple of hundred dollars a month can make a difference and there are now more opportunities to supplement your income than ever.
For those of you who know that you have a challenging credit situation, please visit Dixie Auto Loans where we have a team of credit specialists ready to help you get approved for a car loan today!