When I was young, people lived from paycheck to paycheck. Today, it seems like they live from credit card payment to credit card payment. – Robert Kiyosaki
Are you suffering from a lack of cash? The thing gets worse when you carry a huge burden of credit card bills. You’ll feel like you don’t follow a proper budget, that’s why you can’t manage your finances properly.
Practically, it’s quite true that if you can implement a smart budgeting system, it can help you to prevent increased credit card debt and ruined credit scores.
If you want, you may avoid credit card debts. But for that, you need to maintain a healthy financial discipline. Keeping cash in hand may help you to lower your credit card debts, but for that, you also need to save money.
And to increase your saving you need to prepare a solid budget plan.
It’s never too late to create a budget and achieve your financial goals. Let’s get started with the below-given steps to make yourself out of credit card debts.
1. Review your credit card payments and due dates
If you are making the minimum payment on each of your credit cards, practically you are drastically harming your credit score. However, if you stop making the minimum payments on your credit cards, it will only increase your debts.
For example, you have a credit card debt worth $1,000 and for that, you need to make $40 minimum payment. If you miss your payment then you need to pay $35 as a late fee.
Also, your interest rate on the debt amount will be charged at the default rate of 25%. So, one missed payment can worsen the situation.
So, while preparing a budget, you must keep in mind the due dates and your credit card payments. You must create a provision for your monthly credit card payments. If possible try to pay the full.
If you are using your credit cards for making payments for your business, make sure you pay them off in full within the due date. You don’t need to incurbusiness debt while you can avoid it just putting a little effort.
2. Have only one or two cards active
You need credit cards for purchasing groceries and other stuff, right? If you are noticing that you have too many credit card payments to handle, and slowly the thing is getting out of your hands, you may limit your card usage between one or two prime cards.
This way you can keep track of expenses and payments. You won’t miss any of your credit card payments if you follow these steps.
It’ll be easier to cope up with credit card bills and maintain the budget if you use only one or two cards actively.
3. Avoid cash advances
The world does not need another credit card. – Suze Orman
If you are using your credit card to take out cash advances, it can be very harmful to your finances.
Most of the banks charge a transaction fee up to 5% or so for withdrawing money from a credit card a.k.a cash advance.
Banks charge interest from the day you take out the cash advance.
Credit card companies charge very high APRs for cash advances.
So, you need to prepare a solid budget where you can track your expenses, categorize each expense, and save as much as possible.
Make sure you pay off your mandatory expenses first. If you require to take out personal loans, they have a lower interest than cash advances.
4. Avoid credit cards by using cash
Money is just the poor man’s credit card. – Marshall McLuhan
Do not use credit cards to extend your daily expenses. When you spend $100from your credit card, you are adding $100 to your next month’s budget.
So, it is the best time to reconsider a better way to manage your monthly budget and control credit card debts.
Available credit and available cash are different things. When you use credit cards, you might often forget about when to stop. It is because of the extended credit limit available with the credit card. But when you have cash in hand, you can’t overspend at your will.
Carrying cash is the simplest way to avoid credit card bills. Set aside some money that you think can be needed for a week, and only spend the money that you carry in your wallet. This is a very difficult habit to maintain. But if you can…do it.
5. Make provision for credit card consolidation
Reducing credit card usage is important. But it is also important to pay off your existing credit card debts. If you are suffering from high-interest credit card bills, then you can opt forcredit card consolidation options and get out of debts.
You can opt for a 0% apr balance transfer credit card and transfer all your credit card balances. The 0% introductory rate might be valid for 12 to 18 months.
Make sure you pay the entire credit card balance through equally distributed monthly payments. For that reason, you need to make provision in your monthly budget and consider this payment as one of your primary expenses like grocery bill or power bill.
You may eventake out a personal loan and pay off all the credit card debts. The loan installment should also be considered in your budget plan as a primary expense.
When you’re short on cash, a strict budget is helpful for supporting your situation. Similarly, when you face huge credit card debts, a proper budget can get you out of it or make some ways to pay it off soon. Best of luck.