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Many of us know only too well how easy it is to rack up large debts on credit cards. It’s tempting to buy what you want rather than what you need when you have access to credit in your pocket! For some people the need to reduce debt is essential. Interest rates can lead to a lot of extra outlay on cards.
If you are one who habitually pays only the minimum amount you are not making much inroad into your debt. We’ve got three steps you should look at if you want to reduce your credit debt effectively and efficiently. Let’s begin with an important step that can be performed in two different ways.
1: Make a Plan – Snowball or Avalanche
Before we go on there is a short YouTube that we recommend. It will only take a few minutes of your time, and it explains things very well. Now, the first step is to plan your reduction in credit by choosing either the Snowball or the Avalanche method. What are these?
The Snowball method works like this. Have a look at your credit card accounts and put them in order of balance, lowest to highest. Next, pay only the minimum amount on all but the card with the lowest balance. With that one, you pay a higher amount until it is completely cleared. Then you move on to the new lowest balance and repeat the exercise.
The Avalanche method looks not at balance, but at the interest rate. Look for the card with the highest rate. That is the one you should pay more off while remaining at the minimum for the others. Once the highest rate card is cleared, move onto to the new highest rate.
Remember, you need to stick to this plan for it to work, so take care to work out what you can genuinely afford to repay each month.
2: Reduce Your Spending
The next step is simple common sense: you need to spend less using your credit cards. If at all possible, you need to stop using them completely and you will pay them off quicker. Make a budget of how much you can spend each month, and if there are any essentials that need to be paid by credit, ensure you use a card with the lowest interest rate.
3: Consider Consolidation
Consolidating all your cards into one single loan can be a very good idea. There are many lenders who will offer deals that are better than the credit card interest rates, and you have just one monthly payment to make. Shop around for the best option and talk to a few lenders about this possibility, and a financial adviser will help you set up a consolidation loan for all of your card balances.
We hope the above three steps help you to start looking at reducing your credit card debt, so start planning now and you’ll soon feel a lot better about your financial situation.