Credit cards are an innovative financial tool, so as long as it is utilized cleverly. If the purchaser is not careful enough of handling credit cards, it may switch into a financial disaster.
In the event that you have gotten in over your head in credit card debt, it is the best time to take action to get rid of your debts.
Why it is necessary to reduce your credit card debt?
The balance you carry in your credit card may have a serious impact on your credit score rating if you maxed out your credit limit.
The credit utilization ratio is the current amount you purchased divided by the amount in your credit limit. Expert suggests you should only use at least 30 percent of your credit utilization ratio which is one of the best ways to improve credit score rating and will give a negative impact if you failed to do so.
Credit card debt is a menace to your financial security. It stops you from making the most of your income. Your hard-earned money that is put towards paying credit card bills could be saved for an emergency fund, or for your children’s college, etc.
Credit cards are only intended to be used as a short-term approach for borrowing against your cash flow.
How to reduce the interest rate on your credit card?
The following are the guidelines on how to help you reduces your credit card interest charges.
- Make multiple payments each month going forward
Creditors will be happy to see your debts paid more often rather than just the expected time. The more you pay over your monthly bills, basically you decreasing your balance fast-moving, and it will help you to reduce your interest rate. Because most credit card interest rates are working out based on the average balance you carry every day, not your monthly bills at the end of the month.
- Track all your expenses
It will be a big help if you grab a pen, and make a list of your debts including all your purchases and the interest cost for each item. By doing this, you will be able to see where you have been spending so much money, and you will be able to cut unnecessary things in your budget as well.
- Use Avalanche Method to pay the debt
It is an attractive way to get rid of credit card debts. It targets paying off credit cards with the highest APR (annual percentage rate) first to save as much as you can on interest.
- Pay off with the highest APR– For example, you have one credit card that carries a 13% interest rate, and the second one carries a 16% interest rate, you just need to pay off debts acquired on the 16% credit card first. This method works for those who are disciplined and want to be debt-free.
- Pay more than the minimum repayment– Make it a habit to pay more than your monthly payment bills as much as you can. Even in a small portion each and every month, it will be a huge difference if you do it consistently.
- Negotiate with your credit card company
Try to consider negotiating with your creditor for a lower interest rate. Use the following steps to request and negotiate a lower rate on your credit card:
- Collect your financial information– Find out what your credit score and interest rate are. You can pull a national free credit report through https://www.annualcreditreport.com. If you see negative items on your credit report that impact your credit score, consider repairing your own credit first.
- Highlight your credit history– It will be a good chance if you are a long-term cardholder and a good payer for a long time, creditors might give you consideration for being a loyal customer.
- Try to explain your current situation– We all know that this pandemic has caused a negative impact on many people as a result people lost their job, and it really affects their financial status.
- Speak politely– Remember that you are calling them to negotiate for a lower interest rate, if your request has been denied or rejected, still speak politely and try to call them in the future.
- Automated payments
This is a great idea, especially for those who always forgot their due dates and it works well. This will make the process smooth, before you spend your money on unnecessary things or something else, your credit card debts will automatically be deducted from your savings account.
- Use cash regularly
When using our credit cards to pay for our expenses, we often forgot what our budget and limits are. However, by using cash, we palpably see how much money is left in our pocket and avoid overspending.
Credit cards are best appreciated and enjoyed by the disciplined, who can remain observant of their capability to pay monthly bills on or before due dates. However, if you are not good at maintaining your credit card, start to work out by paying cash instead, this will help you to reduce your credit card debts and interest rate.