If you’re reading this, it’s safe to say you have at least one credit card. It may be your first card and you’re trying to start on the right foot, or you may have had credit cards for years and are trying to reduce your debt. No matter where you are in your financial life, you can improve your standing by taking note of a few simple tips.
If you’re in good standing with your creditors, stay on solid ground by paying on time and making more than the minimum payment. If you’ve already fallen behind or can’t pay your bills, you can take action to remedy the situation by contacting creditors, undergoing credit counseling or using debt reduction strategies.
Pay on Time
Make an effort to pay on time every single month. This can be a problem for some people if they are forgetful or if they are short on money.
If you miss payment deadlines because you’re forgetful, try using one or all of these techniques:
- Set up automatic bill payments.
- Set up reminders online so you receive an email or phone alert when bills near their due dates.
- Write due dates on a calendar.
Missing payments because of a money shortage is a tougher problem to fix. You may be able to take early action such as contacting your creditors or starting a debt management plan. If you’re very behind on payments, you might instead be a good candidate for consolidation or settlement.
Make More than the Minimum Payment
You should strive to pay more than the minimum requirement on your credit card debts. Consistently making the lowest possible payment will lead to high interest payments, more time spent in debt and, inevitably, more frustration.
For example, assume you have a balance of $2,000 on your credit card, your interest rate is 18 percent and your minimum payment is 2 percent of your balance. That means your minimum payment would start at $40 per month. Even if you never make another purchase using that credit card, it would take you 24 years to pay off the debt in full, during which time you’d pay $4,396.57 in interest.
If you slightly increased your payment to $50 per month, you could instead be rid of the debt in just five years and pay only $1,077.25 in interest. By increasing your monthly commitment by even this small amount, you’d save more than $3,000 and be debt-free nearly 20 years sooner.
There are two cases in which it’s acceptable to make the minimum payment:
- If you are facing atypical and extremely burdensome financial problems, you may decide to make minimum payments for just a few months until you get back on your feet.
- Or, if you are working on paying off other debts first, you can make the minimum payment on your credit card while putting any extra money toward the other, higher-interest debt.
If you’re a regular credit card user, it’s a good idea to establish a good relationship with your creditors. That way, they’ll be able to help you avoid problems and will be more willing to work with you should problems arise.
You can begin to create a good relationship simply by practicing good borrowing skills. If you establish a habit of paying your bill on time each month and paying more than the minimum requirement, you’ll get on your creditors’ good side.
It’s a good idea to contact them even before you reach trouble. You may want to ask for a higher credit limit or a lower interest rate, for example. When your payment history is good, they will be more likely to improve your rates.
If you’ve established a good rapport with creditors, they’ll also be more likely to work with you if you ever hit financial problems. If you find you won’t be able to pay your bill for the month, for example, you can contact your creditor before the payment is due in order to work out a plan. Your creditor may be willing to modify your payment plan to make your payments more manageable.
Counseling and Debt Management Plans
If making consistent and timely credit card payments is a regular hardship, you may benefit from professional help. Credit counseling and debt management plans can help you get back on track.
Credit counseling can steer you in the right direction after you’ve taken a few wrong turns. An experienced credit counselor can look over your finances and current situation and then help you make a plan to move forward. He or she can help you set up a household budget, savings plan and payment plan for current debts. Your counselor can also gauge if you need more help.
Among your counselor’s suggestions may be enrollment in a debt management plan (DMP). A DMP is best suited for people who can afford their monthly payments but lose track of bills or forget to pay on time. When you enroll in a DMP, you’ll be responsible for just a single payment each month. Rather than paying credit card companies directly, you’ll send money to your credit counselor, who will then disburse the money to your various creditors. This can simplify your monthly bills and may be able to save you money in interest and fees.
Consolidation and Settlement
Consolidation and settlement are more involved approaches to dealing with too much debt. While they require significant planning and commitment, they can help you out of a tough situation when you have too much credit card debt.
Consolidation rolls all your debts into one payment. As with a DMP, it reduces your number of monthly payments. Consolidation may also have the benefits of lowering your interest rate and improving your repayment schedule.
Settlement is a good option for individuals who can’t afford the credit card debt they’ve racked up. You can enlist the help of a debt settlement firm, which can improve your chance of a successful deal. A debt specialist at the firm will negotiate with lenders on your behalf to have your debt reduced. When completed successfully, you may owe only a fraction of your original debt.
Credit cards can be useful when used properly. They’re convenient and can improve your credit history. However, misusing or overusing the line of credit can have lasting negative consequences. It’s important to use credit cards wisely and seek help when you need it.