Whether you are in a shopping mall, or shopping online for your items, a credit card is the most convenient option for your day-to-day shopping. It is also a flexible way to pay for your needy items.
Moreover, you can spread the cost of your items over a matter of months and thus you can build a healthy credit history if you repay on time.
Whenever you are using your credit card to pay for the items that you have purchased, the amount you spend will be added as credit card debt. Each month you will receive a statement that will display your card balance. The total amount that you have owed is the credit card debt and you also receive a choice of ways to repay the amount.
If you repay on time then you don’t need to pay any interest. If you seem it difficult to pay off your credit card debt then this guide will help you out.
Here, in this article, we are going to cover how credit card interest works, why a debt repayment plan is important, the benefits of credit counselling, why maintaining good credit is important, and how to pay off your debts.
Types of credit card debts:
One of the most common types of debt is credit card debt. Because credit cards are the easier way to borrow money and a simple way to repay. If you can use the credit card properly then you will be offered a way of spreading the cost of bigger purchases.
Besides, you need to keep in mind that credit cards are the easiest way into debt so you need to be very careful. Apart from having high-interest rates, credit cards sometimes can take longer time to pay off debts. If you are unable to make payment of your credit card debt on time then expensive charges for missed or late payments will be applied to your next payments.
There are mainly three types of credit cards. These are:
Credit card:
Standard Credit cards are the most common type of credit card. These cards are issued by banks, you need to apply either online or at the branch for getting this one.
You will get a maximum limit on using the credit card which means to this maximum limit you only can purchase things. If you spend more then you will be charged to pay on the card.
If you don’t repay the balance in full then you will be charged interest on your borrowed amount each month.
Debit card:
Debit cards are different from credit cards. From debit cards, you can only draw money that you already have into your account instead of borrowing. But, if you want to draw the money that you don’t have into a debit card then your card will be declined. Otherwise, you can fall into an overdraft facility.
Store cards
Store cards provide you the facility to buy items on credit from retailers, it works similarly to credit cards. Anything you have purchased using your store card will charge interest on the amount that you have borrowed if you don’t make the repayments within the time frame.
How credit card interest works
Credit card interest is the rate that credit card companies charge you for the privilege of lending money. It is also referred to as the annual percentage rate or APR. Most credit card companies have variable APRs that can fluctuate with a particular benchmark, for example, the prime rate. So, if the prime rate is 5% and your credit card company charges the prime rate plus 13%, then your APR will be 18%.
If you are not paying your bills in full each month then you will be charged an interest rate. In such case, the credit card company charges interest on your unpaid balance and this charge will be added to your next repayment. So, if you don’t pay the repayments in full each month then you need to pay the interest over interest.
Thus, your credit card debts will grow rapidly and sometimes they will get out of your hands. Moreover, for some complicated matters, some credit card companies charge multiple interest rates.
Why a debt repayment plan is important
A debt repayment plan is made between you and the creditors and it is a type of promise that you will repay your payments on time. The debt management plan will reduce your credit card interest rates and will lower your monthly payments. Utilizing a debt management plan is a great idea for you and it is the right move depending on your unique financial situation.
Here, we are going to discuss the factors why a debt management plan is important:
· You only require to make one monthly payment:
With a debt management plan, you will not require to make multiple payments to the lenders each month. Instead, you only need to make one repayment to the credit concealing agency. The credit concealing agency then makes the payments to the lenders on your behalf.
It is very useful in such cases if you have a lot of accounts and you are struggling to remember various due dates. With only one monthly payment you don’t require to juggle for constant stress of late fees.
As long as you will make payment on time to the credit concealing agency, you can take it easy for the remaining days of the month.
· Perhaps you can be able to secure a lower interest rate:
As a part of your debt management plan, the credit concealing agency will try hard to negotiate lower interest rates on your behalf of you. When it comes to your debts, or credit card debts, the higher interest rate will increase your monthly payments.
But if you can be able to secure a lower interest rate the monthly payments will drastically decrease. Lower interest rates sometimes mean lower monthly payments.
· You can see your credit score increases over time:
A debt management plan initiates your credit score to increase over time. Because a debt management plan helps you to stay consistent and eliminate your debts very quickly. These both are very important for obtaining a good credit score.
· You can save a lot of money:
Most people with a negotiated lower interest-rated debt management plan, are likely to pay off their debts within 3 to 5 years.
When you combine the accelerated repayment time, and the lower interest rate, you can save a lot of money throughout the debt management plan.
The benefits of credit counselling
If you are looking for ways to eliminate your debts and enhance your financial situation, you can go forward with credit concealing. Credit counselling is a great way to eliminate your debts and regain control over your finances. But, you may find it confusing whether credit counselling is the right option for you or not.
Here, we are providing some benefits of credit concealing that will help you to take the right decision:
· Maintain a good credit score:
Having a good credit score is very much important for approving a loan application with a desired lower interest rate. But, people having debts are associated with a bad credit score. Credit counselling agencies will help you to regain a good credit score.
· Making affordable repayment plans with the creditors:
Credit concealing agencies are very important as they make negotiation with creditors regarding lower interest rates and the term of the repayment on behalf of you. They will make an affordable debt management plan with the creditors on your behalf. Credit-concealing agencies will find out easier payback amounts with systematic interest rates.
· Reduction in interest fees:
Another benefit of acquiring credit counselling agencies is that they will negotiate lower interest rates. So, the annual percentage can reach up to 5 to 10%. This will reduce the overall debt amount and makes the repayment simpler.
· Transferring big multiple bills into one:
Credit concealing agencies help you to manage overwhelming interests and debts into one manageable monthly repayment with the help of bill consolidation.
· Getting rid of creditors’ harassment:
If you are getting fed up with the harassment made by credit collection agencies then you must opt for credit concealing agencies.
As credit concealing agencies will perform as your rescuer. Credit concealing agencies directly deal with credit collectors and it results to end up direct contact with the clients.
Why maintaining good credit is important
In this current era, our society is becoming completely dependent on credit for purchasing things, owning a house, education, purchasing cars, and so on. A good credit score is important for more than just getting your loan approval. There are various benefits of scoring good credit.
Here are how a good credit score can make your life more comfortable and easier to live.
1. Easier credit approval:
If you have a good credit score then you will likely get bank loans. Banks, lenders, and other financial institutions will easily approve your loan application. That means when you apply for loans, mortgages, or credit cards; your application is likely to be easily accepted. You may require to spend less time hearing the loan approval.
2. Lower interest rates:
If you have a good credit score then you may be offered a low-interest rate. Paying less interest on your debts enhances your savings and you can save a lot of money over the period. So, building a good credit score is one of the best financial aspects that you should make.
3. Good loan terms:
People with good credit scores are more likely to be offered better loan terms than people with bad credit scores. You can get a higher credit limit on our credit card. Also, you can be offered to take advantage of a low fixed-rate mortgage.
How to pay off your debts
Sometimes credit card debt can be expensive. However, there are several ways that you can take to pay off your credit card debt.
If you are struggling to pay off your credit card debt then you can follow some of the strategies. These strategies will help you to take out the stress of your situation and also helps you to clear your debts.
1. Assess your current situation:
Before taking any action, you need to sketch out how much you owe and to whom. If your total debt is spreading across multiple credit cards then it can be difficult to have an accurate picture of your total debt.
The first thing you need to evaluate is your incomings and outgoings. Once you can evaluate how much money you have left at the end of each month then you can realize how much money you can put into your credit card debts.
2. Increase your monthly repayments:
Imagine that you have left the average amount for repaying your credit card debt each month. If you make an exact payment for making repayment of your credit card debts then it may take more years to pay off completely the debt.
But, if you can make bigger repayments then you can end the paying off your credit card debt earlier. So, if you are able then go forward with a larger monthly repayment option. This strategy will help you to pay off your debt more quickly.
3. Check your credit score:
If you owe a poor credit score then it can be a barrier to accessing the best rates on credit cards, loans, or anything other financial assistance. So, you must always need to repay the monthly repayments on time. It will help you to have a good credit score.
4. Transfer to a 0% or low-interest credit card:
Although you are very much sensible regarding how you are using your credit card, high-interest rates can see the amount that you have owed quickly reaching an unaffordable amount.
The average rate of interest is increasing from time to time, so the amount that you owe may rise significantly over time.
Reducing the APR on your credit card will help you to manage the balance of the credit card and also you will be calm and stressless.
5. You can communicate with a professional advisor:
Most people who have the burden of credit card debt on their shoulders can feel embarrassed, or shy to speak out to anyone about it. Many credit card companies are sympathetic and try to work with you to lessen your debt burden.
Still, if you don’t find ways to resolve the matter then you can fearlessly speak to a professional financial advisor. They will provide you with guidance on how you can pay off your credit card debt.
6. Bank transfer:
You can pay off your credit card debt from your bank account in one go. You can also use digital banking, can go to your credit card app and follow the instructions.
7. Direct debt:
You can set up a monthly direct debit, it will pay off your credit card balance in full each month from your bank account. It will not hit any late-payment charges to you.
8. Debt consolidated loan:
If you owe a high level of credit card debt, you can go forward to apply for a low-interest debt consolidated loan that will pay off the balance of your credit card. Then you can pay off the loan over a few months.
FAQs-
What percentage of credit card debt should you pay off?
Ans: The key factor is you must keep your credit card balance at or below 30 per cent of your credit limit. It will help you to maintain a good credit score. That means having no balance on your credit card is even more helpful.
What is the best approach to paying off credit card debt without hurting your credit?
Ans: you can set a direct monthly debit, it will help you to pay off your credit card balance in full each month. It will not make any harm to your credit and you will not be charged any late payment charges that increase your debt.
Conclusion
Credit card debts are expensive. The average interest rate that is charged on a credit card is 22%. Generally, the higher the balance, you will need to pay interest. Interest is also compound, which means you need to pay interest on interest.
It will be great to pay off your credit card debts on time. Here, in this article, we have covered various ways to pay off your credit card debt.
You can pick the right one that is more suitable for your financial situation. Also, you need to make purchases using your credit card very wisely. It will help you to achieve your financial goal very quickly.
