We know how frighteningly easy it is for credit card debt to pile up. According to a financial survey in Singapore, 73% of Singaporeans while 56% own more than one, and 10% holding six or more. Almost all of them carry a credit card balance of more than $5000.
But here's the scary thing about credit cards: they only benefit you when your credit history is being generated and benefits are earned, but not when interest is paid. Credit card firms make tons of money off you if you spend a great deal of interest on your accounts. At this point, it would be safe to say that your cards are using you and not the other way around.
As the interest rates on new credit cards have risen over time, it will be worth paying off the debt and putting yourself out of any financial risk. The only time you should use your credit card is if:
You do not have any debt outside of a mortgage or student loans.
You have an emergency fund with three to six months of expenses saved.
You can pay off your balance in full every month.
Have a strategy in mind before racking up any unwanted interest payments. Make it a priority to learn how to use the credit cards responsibly and pay off debts before interest creeps in.
Here are some practical ways you can quickly tackle your credit card debt and take your first real steps toward getting out of debt:
Create a Strategy
It is necessary to set realistic deadlines for paying off your credit card debts. Although it is possible to rack up credit card bills in a brief amount of time, paying them off can require substantial time and self-discipline. To help you keep on track and inspired to meet your goals, assess your progress daily.
Put that Card Away Out of Sight
To be debt-free, you need to remove those credit cards out of your pocket so that you are not tempted to use them. Put away your credit cards until you have paid off the remaining balances in full. A more useful strategy would be to make cash transactions instead of credit as this will help distinguish needs from wants and make you think twice before splashing money.
This is where credit cards come in to tempt you to use them in return for cashbacks, or other rewards.
Prioritise Your Debts
Make a complete list of all your debts (outstanding balances, interest rates, and charges) and prioritise them in order of importance. Mortgage payments and vehicle payments are typically at the top of most lists as these provide you shelter and transportation to get to and from your job.
Priorities for everyone would be different. Some individuals want to get rid of the highest interest rate debts first (Mortgages, Vehicle loans, Student Loans) while others have different debts that they want to settle first, such as payday loans. The order in which you will pay back your loans should be determined by you.
Options to Pay Debt Faster
Many people regularly contribute to a high-interest savings plan, which is great to pay down debt faster. Once you have established an emergency fund and are saving for irregular expenses, you may want to consider suspending extra payments to savings accounts until you have paid off your debt. This is especially beneficial to those who are not saving for something specific like purchasing a new car.
The money you save by paying down your debt faster will be substantially higher than the interest you will earn in a savings account. Also, consider using pay increases or other unexpected funds to pay down your debts.