Christmas and holiday spending can be brutal on any family budget, considering that most families overspend significantly during the holiday season. The average American household is estimated to have more than $ 8,000 in credit card debt. After all the fun and festivities are over, you need to take control of your household budget and expenses. Unfortunately, one of the largest but most controllable expenses for most people or households is their revolving debt. The payments may not only jeopardize your ability to spend, but may also limit your financial options for buying a car or home. To escape the credit card debt trap, you will need to determine the best way to pay off and eliminate your debt. The following is a list of suggestions on how to pay off your debt and improve your financial situation.
• Collect your information: Collect your latest pay stub and all your latest credit card statements. Write down the creditor’s name, balance, interest rate, expiration date, and minimum payment for each card. Then add up all the minimum payments for each account. Based on your disposable income after paying your mortgage, utilities, and other necessities; Do you have enough money left over each month to make the minimum credit card payments? Also, write down how much interest you pay monthly and annually. This is the amount of money that is being wasted.
• Make a plan: Once you have a basic budget that includes your income and debt, you can decide whether you want to consolidate your debt, start reducing your debt by paying off the cards with the highest interest rates first, or start by paying off the cards first. with the lowest balances. Choose a plan that you can follow, no one knows your financial situation better than you.
• Consolidate your debt: Convert your revolving debt into a term loan. If you close your credit cards after consolidating them, you will no longer be able to increase your debt. In addition, part of your payments will reduce your principal balance of debt, unlike minimum credit card payments that generally only pay interest on the outstanding balance. Therefore, you will pay off your debt and the consolidation loan must be paid off within a certain number of years. If you are financially capable, it would benefit you to make more than the minimum payment, thus reducing your principal debt balance more quickly. If you decide to consolidate your credit card debt, take the time to thoroughly compare your options and look for an interest rate that is lower than your credit card interest rates. Also, set up an automatic payment arrangement for your consolidation loan. This will prevent you from being late and could face penalties and / or a higher interest rate.
• Debt settlement: this is the program that is an alternative to bankruptcy. When reviewing your finances, if you discover that your monthly payments exceed your financial capacity, you should look for alternative options, such as: working with a financial institution to consolidate your credit, discussing your options with a bankruptcy attorney, or speaking directly with credit card companies. credit to reduce principal balances owed on your debt.
• Stop Charging: Once you make your plan to pay off your debt, you’ll need to commit to stop charging your credit cards and creating new debt until your finances are under control. Your plan won’t work unless you cut down on your expenses.
Taking control of your finances can create short-term difficulties and limit your ability to buy items for years to come, such as: a new car, a new home, or a vacation. However, it is imperative that you control your spending, so that you can improve your finances and get out of debt. Once your debt is paid, you will have a significant increase in disposable income. Also, you must have higher credit scores and a lower debt-to-income ratio; therefore, in the future, you must qualify for preferential rates on auto and home loans.