Credit cards make it easier to live the life you want without worrying about the financial burden of it in a go. From travel expeditions to medical emergencies, it can be used to pay off various types of bills. Most people believe that using a credit card might lead to a debt trap. However, it totally depends on your financial discipline. Contrary to this popular opinion, credit cards can be used to improve their credit score.
Most people are not able to do this because they lack financial discipline. Credit score improvement isn’t the only benefit that a credit card offers. There’s plenty on the plate with the best credit cards, from discount offers on premium brands to free travel miles. However, it is essential to be cautious of the spending limit while using a credit card. Not doing so can increase credit card dues, making repayment harder and inviting hefty interest charges. Read on to learn how to deal with high credit card balances.
Tips for managing high credit card balance
Everything has its pros and cons, and so does a credit card. A higher balance or spending on a credit card indicates financial trouble and a lack of discipline. Using anything excessively can lead to problems, which is the case here. It is crucial to do a credit card balance check regularly. Credit usage is an essential factor in computing the credit score. Accumulating high amounts of debt can negatively impact your credit score on this ground. Not to forget the high-interest rates, which keep rising the bars for the outstanding balance. However, the situation can be remedied with some best practices and caution. Let’s learn how.
1. Stop spending through your credit card
It’s always lucrative to purchase high-value items through a credit card when we don’t have enough funds saved. However, when you have a high credit balance, it should be avoided at all costs. Stop spending through credit cards if you have used over 35 to 40% of the credit limits. It is essential to cut down on unnecessary luxury items to avoid the debt trap. Pausing your credit card spending is a great way to deal with high credit card balances. It is easier to pay off the credit card balance if the total monthly purchases don’t exceed the monthly payments. You can also try freezing the card for a short period if you are habitual of using it for shopping.
2. Transfer the amount to a no-interest credit card
Transferring the high credit balance amount to a no-interest balance transfer credit card is a great way to deal with the situation. It’s ideal because when you have a high outstanding balance, a fraction of the bill payment amount goes towards the interest charges. A higher interest rate adds to your monthly bill payment burden. Cutting down on interest payments by transferring the balance amount to a no-interest credit card is a prudent choice. A zero-interest balance transfer credit card can help you quickly get rid of the debt. However, checking the terms and conditions associated with the balance transfer card is crucial.
3. Make higher payments
Most people manage their high credit card debts by paying only the minimum due amount each month. This is not the right approach to credit card bill payments. You can avoid late fees and other penalties by making a minimum due payment. However, it will invite more interest charges, ultimately increasing your bill amount. Repaying a high credit balance using the minimum payment due approach will take the longest. Making higher payments toward your credit card bill amount can quickly reduce overall debt. It also pays off towards the principal component of the borrowing, which reduces the interest expenses. Therefore, the bill amount for consecutive billing cycles is reduced.
4. Convert outstanding bills to EMIs
Many credit card companies allow their customers to convert the high outstanding bills into EMIs. Unlike the usual credit card interest charges, the interest charged on these EMIs is lower. It can help save a significant amount of money on interest expenses. You can check about this offer by visiting the branch office or the online website of the credit card company. Any queries can be resolved by discussing the challenges with a customer service representative on call or in person. It is crucial to assess your repayment capacity before choosing the EMI amount.
5. Debt consolidation
Debt consolidation refers to managing multiple high-interest rate debts by borrowing money at a lower interest to pay off existing debt amounts. It is a financial technique deployed to counter high interest-rate debt such as credit card loans. If you have multiple credit cards with a high balance, you can opt for debt consolidation to pay off the bills faster. A low-interest debt consolidation loan can work wonders. Comparing different loan providers and products is essential before opting for debt consolidation.
