This is a special guest post by John from MoneyNerd. Enjoy!
Credit cards are an increasingly common way for people to pay for their daily goods and services. But to many people, they are more than an alternative to debit and cash they are essential tools when it comes to managing their budget.
Some people simply won’t be able to manage their bills and essentials without a credit card. But of course, you simply can’t leave credit card debts to mount up, can you? But clearing credit debt is notoriously difficult and not made any easier by the mistakes people make.
Let’s look at 5 common mistakes people make when trying to clear credit card debt. That way you can be sure to avoid them and increase your chances of successfully clearing any outstanding debt you have.
Getting a loan
It’s surprising how many people recommend getting a loan to clear credit card debt. Advice websites and financial advisers will often advise people that getting a loan can help and while it might rid you of your credit card debt it will leave you with loan repayments to deal with.
You aren’t really solving the problem, are you? You’re simply trading one debt for another, in extreme circumstances getting a loan might be advisable but it should not be your first port of call because it will often just make your financial situation worse.
Not going above the minimum payments
If you never go above the minimum payment it could take years to pay back any outstanding credit card debt especially when you consider the mounting interest costs. The minimum payment is usually small around 2 – 3% and if you are struggling to manage other costs it’s understandable why sticking to the minimum payment might be easier.
But by doing this all the time you will be increasing the amount of interest you need to pay and making it much more difficult to clear the debt. So, try to go above the minimum payment whenever you can, if you manage to clear the entire bill each month you can avoid any extra interest costs as well.
Not setting a budget
A budget is something everyone should have but when it comes to clearing credit card debt a budget is essential. When setting up your budget work out what your monthly income is and your average outgoing expenses. Use whatever you have left to put towards paying off your debts faster, you can even use this time to work out ways to make extra savings like reducing your shopping expenses for example.
Not taking advantage of a balance transfer
The main issue with credit card debt is the mounting interest, in a short time this extra cost can turn a small debt into a huge one and it can mount up very quickly. To avoid this you should take advantage of a balance transfer.
With a balance transfer, you can move your outstanding credit card debt to a new credit card with zero percent interest. Taking out another credit card might seem like a bad idea but there is a good reason for doing it.
By transferring your balance to a zero percent credit card you can ensure all your repayments go directly towards paying off your original debt and not get stuck trying to chip away at any accumulated interest. There will usually be a fee to pay for a balance transfer but it will usually be worth paying, in the long run, to get your original debt cleared faster.
Not prioritising your debt
Not prioritising your debt is going to result in a very difficult journey to paying it off. Some people simply don’t realise the gravity of the situation till bailiffs are at their door. Getting into debt is nothing to be ashamed of it has happened to millions of people and as long as you are sensible you can clear it and get back to normal.
So, don’t bury your head in the sand and instead be practical. Work out which debts are the most important to pay off first, this will depend on your individual circumstances but for the majority of people it will be the most expensive debt or the one with the highest rate of interest.
However, if you have any debts secured against your house make sure to get those cleared ASAP. It’s also essential that you cover other costs like utility bills and essentials like shopping as well. If you can only pay the minimum payments some months just do that and try to pay more next time.
It might take some time to pay off your credit card debts put it can be done so just keep that end goal in mind.
