Last Updated on October 6, 2020 by Nexus Financial
Credit Card Payment Tips Overview
If you are like many Americans, you struggle to make your monthly credit card payments and get out of debt. Because of this, you pay a price in interest charges, late payment fees, hits to your credit history and personal stress. Consequently we offer you several credit card payment tips that can help you achieve your goal.
According to the Federal Reserve, credit cards represents the second largest portion and is the most expensive form of unsecured consumer debt today. Accordingly, consistent, on time credit card payments will help your credit score and ability to borrow in the future. However, you need to payoff your existing credit card debt, then you can move forward and gain control of your financial life.
DISCLOSURE: Nexus Financial Services is a provider of small business working capital and consumer financing services.
Credit Card Payment Tips – The Basics
Credit cards are open revolving credit. Basically your credit card lender establishes a minimum monthly payment amount that allows you to “roll” the remaining balance to the next month payment cycle. However your lender charges you interest on the remaining balance that is rolled over.
These interest payments are the core business model of credit card lenders. Furthermore, they live off this interest and desire that you pay this forever.
1 – Pay Your Credit Cards On Time
The first of the credit card payment tips is to completely pay your monthly credit card balance on time. Instead, take advantage of a no cost, interest free consumer loan (excluding annual credit card membership fees).
Your credit card lender determines your minimum monthly payment as between 3-5% of your current balance total. So this changes every month.
If you do not add any new purchases, your rolling balance total will be reduced and your minimum payment will also be reduced. Therefore, if your goal is to payoff your credit card debt, you cannot play this game of just making the minimum monthly credit card payments.
2 – Follow A Credit Card Monthly Budget
The second of the credit card payments tips is to establish a monthly budget to prioritize credit card payments. Moreover your goal should be to payoff your total credit card debt balance within 12-24 months. While this may be financially difficult and painful, you will regain financial control of your life.
3 – Demonstrate Payment Discipline And Consistency
The third of the credit card payment tips is acknowledgement. Because, if you have an outstanding credit card balance, you have a debt problem. Certainly it should be painfully simple to understand.
Credit cards allow you to pay for things now that you cannot afford to pay for in cash. So, you either are living “beyond your means” or you had a life emergency that required the use of credit cards due to insufficient savings.
They are many reasons as to why you and others like yourself have gotten to this financial situation. Consequently it is time to make changes to regain control of your financial life.
Here are recommendations:
- Acknowledge and understand you have a credit card debt problem.
- Create a budget of your income and payments.
- Your credit card accounts will no longer be available for any future purchases. So, put them physically away.
- All non-discretionary (must pay) electronic payments (electricity) should be transferred from a credit card account to your bank debt card. Therefore you will no longer be using credit for non-discretionary payments.
Avoid taking on more debt. Because you cannot reduce your credit card balance total unless you stop using your credit cards.
Don’t add to your problem. Instead be focused and disciplined
4 – Credit Card Payment Tips – Alternatives
The fourth of the credit card payment tips is to consider outside-the-box alternatives. Generally you must have a very good credit score to qualify and get lower interest rates for these credit card payment options to be considered.
Credit Card Balance Transfer
This is a form of debt consolidation. For example, many lenders offer this type of credit card to consolidate unsecured debts. Basically you use this type of card to consolidate your existing credit card balances to this new credit card.
These types of cards offer special “teaser” 0% APR introductory rates on balance transfers, giving you a limited time to pay off debt interest-free. Accordingly, at the end of the introductory period, the balance transfer credit card APR will increase and may be higher than what your are currently using.
You need to account for lender balance transfer fees when determining the total cost of consolidating your credit card debt.
Debt Consolidation Loan
This is also a form of debt consolidation. Simply put, you take out an unsecured personal loan at a lower interest rate than your existing credit card debt. Then you use the funds from the loan to consolidate and pay off your existing credit card balances. Finally this leaves only the low-interest loan to repay.
You need to account for lender loan origination fees when determining the total cost of our credit card payments.
Home Equity Line Of Credit
You take out a secured personal loan using your house equity as collateral. Consequently the interest rate will be less than an unsecured personal loan. Then you use the funds to consolidate paying off your credit card debt.
However this is not recommended since you risk loss of your house in case of payment default.
Debt Management Program
This is offered as part of a Consumer Debt Counseling service. Basically it is a centrally administered credit card payment plan by a credit counselor. So you fund a budget for creditor payments, but the credit counselor does the communicating and directing of payments with your creditors.
There is a setup fee and monthly administrative fee for the service.
This is debt reduction rather than debt consolidation. Specifically debt settlement comes into play only with your unsecured debt like credit cards, medical bills and personal loans.
This debt relief option will help you only if you have a financial hardship and have little likelihood of repaying your creditors.
Filing for debt bankruptcy is the ultimate, last resort of credit card debt relief. Surprisingly there are many cases where this is really the best option for you to get out of credit card payments and start over.
However debt relief bankruptcy is a complex, legal process that requires expert advice to ensure that you achieve the best outcome and move forward with your financial life.
Conclusion – Credit Card Payment Tips
Four credit card payment tips are presented on how to regain control and move forward with your financial life. Undeniably they require acknowledgement that you have a problem with using credit cards. Accordingly, if you can demonstrate the patience and discipline of repayment, these tips offer you a chance of future success.