Credit Card Debts Accumulate Faster Than Savings Account Interests
Many people have at least two credit cards. Some people use their credit cards wisely, while others don’t. You may define responsible credit card usage as paying off debt balance every month and using less than half of the available total credit line. If you already own a savings account fund for retirements and emergencies then you are on the right track. However, if your credit card debt amount is equal to your savings account you’ll see that your credit card debts grow faster than your savings account, because typical credit card debts have higher interest than savings account. If this happens, you are facing a serious financial bleeding that will leave you wither and dry slowly. To fix things immediately, you need to start using your cards responsibly while building a respectable amount of savings account.
First you should get a credit card company that agrees to give you cash back on each purchase (cash rewards). Specifically, choose a card that will give you at least 3 percent cash back. It’s preferable not to open up another line of credit if you don’t have to do so.
Next, you’ll need to find a high-interest savings account. Companies like ETrade and INGDirect don’t use minimum balance requirements. Your credit union or local bank can also help you in getting an acceptable savings account rate, while, most online banks usually pay higher interest due to lower overhead expenses.
After you have your high-interest savings account and credit card with cash rewards opened, it’s time to use the credit wisely, don’t go beyond half of the credit limit and don’t put any purchases on the card at any given day that cannot be paid off immediately. Every month, you absolutely need to payoff the whole balance. Pay groceries and gas on your recently opened cash rewards card.
When the end of the month arrives, you will need to do the following:
- Pay all the credit card balance
- Cash out all available cash rewards – if possible transferred directly to your savings account
- Put unexpended money in the high interest savings account right away.
For example, if a credit card offer a 3% cash back and you spend $2000 in purchases every month, you may add $720 annually ($60 each month) to your savings account. That’s not a significant amount of money, but it’s surely better than nothing and requires almost no effort on your part.
Paying Credit Cards Off to Reduce Your Debt
Credit cards cause huge problems for many borrowers. They are one of the easiest ways to run up debts since they can be used to make purchases in stores and online. It is easy to spend on a credit card without realizing how large your debts are growing. Credit cards also tend to have high rates of interest, so the bills that you run up on them can quickly turn into mounting debts that are out of control. Paying off your credit cards is, therefore, an important part of any attempt to reduce your debts.
Work out how much you can afford to pay off each month and make sure that you do this. Do not simply pay the minimum amount required by the card, as this will leave you paying huge amounts of interest. If your credit card does not charge interest when you pay off the entire balance each month, then try to do this, as you will essentially be borrowing for free. If you can’t manage this, then pay off as much as you can.
Make sure you pay your most expensive credit cards first as these are the debts that will be costing you the most to keep. If a certain card has a very high interest rate then you should get rid of it as soon as you have paid off the debt.
Changing to a new credit card or transferring your debts between your existing credit cards can save you substantial amounts of money and help you to pay off your debts. Make sure that your debts are on the best possible credit card, with the lowest interest rate. Take advantage of offers of low or no interest when you take out a new card or perform a balance transfer, but make sure you know when the offer expires and what will happen to your interest after that. Don’t let yourself get trapped with a high interest debt. If you would prefer to stay with your current credit card, but you want a lower rate, then you may be able to negotiate something with your credit card provider. They may offer you a better deal if you ask them for one, in order to prevent you from switching to a different card.
Reduce the amount you spend on your credit cards. Get rid of any cards that you don’t need so that you are not tempted to use them. Keep track of what you spend. You may find this easier if you pay with cash rather than a card. If you don’t want to spend any more money on a particular credit card then leave it at home, so that you won’t be able to use it.
Credit cards can be useful tools as long as they are properly managed, but running up large debts on them can result in serious financial problems.