According to a study by NerdWallet, the average American household with credit card debt pays more than $1,200 per year in interest. Now that the holidays have come and gone, you may be struggling with extra credit card debt. Not only does debt cause stress, it also harms your credit. Chip away at your holiday debt each month to avoid high interest charges and maintain healthy credit.
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.
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. 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 If the amount is automatically withdrawn from your account each month, you’ll be less likely to feel tempted to spend it on something else as the payment date draws nearer.
Over the next few months, continue to stick to a close budget to avoid letting your balance continue to creep higher.
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. The example below demonstrates how to calculate your current credit usage.
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.
After a few months, your credit card debt will be much more manageable. This year, you can buy your holiday gifts with the $1,200 that you saved on interest payments.