How To: Save Money Paying Off Credit Card Debt
Keeping up with your credit card payments is already a challenge, but managing multiple cards on top of your student loans or mortgage can feel impossible. What’s worse is if you have revolving credit card debt; average households owe over $16,000, so even just the monthly interest can be a significant expense!
If this sounds like your financial situation, read on! Some strategies for making this debt a lot more manageable are headed your way.
How can you make your debt easier to manage?
There are a few different ways to manage your credit card balances, including paying off your cards one by one. But another way is to do it through a loan. After taking out a loan, you pay off the debt on all your credit cards, and you’ll owe monthly payments on a single lower-interest loan. Focusing on one payment is much easier than trying to manage 4 or 5 at once, and as long as you avoid some key pitfalls, credit debt consolidation loans can make getting out debt an achievable goal.
Why should you take out a loan to pay off your credit cards?
Why is moving your debt from one place (your credit cards) to another place (a loan) helpful, if it’s not actually paying off your debt? One of the biggest reasons is that loans typically have lower interest rates than your credit cards – sometimes a savings of around 9%! As long as you choose your loan provider carefully, you have the opportunity to save a lot of money in interest charges over the course of your loan. What does that mean? More money towards paying off your actual debt!
Need another reason to make the switch? Your credit score could be on the come up too. One factor that contributes to your credit score is your utilization rate. Keeping your utilization rate low improves your credit score, so when you have debt and you’ve maxed out your cards, your utilization rate is really high. Paying off your debt with a loan will lower your utilization rate, so your credit score can start to bounce back as you work to pay off your loan. All these benefits of consolidation makes it sound like a no-brainer, but there are a few pitfalls to avoid if you want all the upsides.
What are the risks of credit card debt consolidation loans?
One of the biggest risks of consolidating your credit debt is that it doesn’t solve the underlying problems that got you into debt in the first place. Paying off your credit debt gives you access to more available credit, which might tempt you to overspend. Sound familiar? Some good advice to avoid this pitfall is to create a budget, stick to it, and set aside money for your monthly loan payments in advance, to make sure you don’t end up in a worse place financially than you started. Even though it sounds easy, as someone who’s gone over budget a time or two, I know it’s not. Luckily there are some great tools out there to make these decisions simple and manageable.
How can you avoid falling into bad habits?
There definitely are some risks to consolidating your credit card debt: a new loan doesn’t make creating a budget- or sticking to it!- any easier. Two of the best ways to set yourself up for success are to choose a loan provider with low interest rates and to set aside money every month to stay on top of your loan. As long as you create a strong, realistic budget and remember that your debt isn’t gone, it’s just moved to a place with lower interest, it’s easy to avoid the pitfalls of credit debt consolidation loans and start building your credit score again, all while getting out of debt! With Debitize, you can stay on top of your credit cards to make sure that you don’t go into debt again.