Now that the holidays have come and gone, you may be struggling with extra credit card debt. Studies have shown that the average American household with credit card debt pays more than $1,200 per year in interest. Not only does debt cause stress, it also harms your credit. Follow these steps and chip away at your holiday debt each month to avoid high interest charges and maintain healthy credit.
1) Pay More Than the Minimum
Carrying a balance each month is unhealthy for your credit score and also makes you susceptible to interest charges. To avoid a month to month balance, pay more than the minimum amount that appears on your monthly statement. Avoid spending above your means and pay off any new charges in full. This will help you put a dent in your debt and reduce the amount of interest you owe over time.
2) Pay Off a Set Amount Each Month
Set aside some time to assess your finances and determine a realistic amount that you can dedicate toward paying off your debt each month. For example, you may want to set up auto-pay on your account with this specified amount. If the amount is automatically withdrawn from your account each month, you’ll be less likely to feel tempted to spend it on something else as the payment date draws near.
3) Keep Your Credit Utilization Low
Divide your balance by your credit limit, then move the decimal two places to the right. This is your current credit usage. A higher percentage will harm your credit while a lower percentage will help. See the example to calculate your current credit usage.
Current Credit Usage Calculation
Statement Balance = $500
Credit Limit = $1000
$500 divided by $1000 = $0.5
Move decimal two places to the right = 50
Current Credit Usage = 50%
Credit bureaus receive account information each month, typically at the end of the billing cycle before you make a payment. As you work toward paying off your debt, focus on keeping your credit utilization lower. To start, try to cap your usage at around 30%. Your payments will be more manageable moving forward and your credit score will improve.
4) Spend Wisely
Stick to a firm budget to avoid letting your credit card balances continue to creep higher. Evaluate your income in relation to fixed expenses. Try to keep your spending within your means. As you have extra funds, place them in a savings account so that you’re prepared for unexpected expenses…or those holiday gifts you’d like to buy.
Receiving Collection Contact? Seek help from a Consumer Law Firm
Once you fall behind on payments, the creditor may choose to assign or sell your obligation to a collection agency or law firm collector. It’s important to know your rights and the laws that protect you from abusive collection tactics. Whether you owe the debt or not, the collector must follow the law.
Flitter Milz is an experienced consumer protection law firm that pursues cases against collection agencies and collection law firms. Contact Us for a free evaluation to determine whether your consumer rights have been violated.