How to Manage Your Credit Card Debts in 2021
Credit cards allow consumers to enjoy their lifestyle just the way they want, but it is also one of the commonest ways in which they end up running into debt. The year 2020 has been a difficult one, with people losing jobs worldwide due to the pandemic. It is essential, more than ever, to be careful with your finances. Credit card debt settlement is an option if you find yourself unable to deal with your loans.
Here are some methods in which you can manage your credit card debts better in 2021.
1. Using your Credit Cards Responsibly
This is something that most users tend to forget. While credit cards allow you to shop for things even if you do not have enough money with you at the moment, you still need to pay for them at a later point. People often do not calculate if they would be able to do that. Credit card bills usually arrive monthly. Unless you are sure you will have an income and will be able to pay off the bills in full, do not use your credit card.
2. Use Credit Card to Build a Credit History
You should use your credit card to build your credit history and no credit card debts. This is perhaps easier said than done. Yet, only use your credit card when you know you will earn reward points which you can redeem later. Or, only use it if you want a secure payment, rather than paying in cash for a particular product or service. Apart from these, avoid using credit cards unnecessarily.
If you have to make non-essential purchases of large amounts, use your debit card instead. That way, you will only be able to pay if you have the reserves at the moment and not end up buying something non-essential by running into debt. With large amounts of debt on your credit card, your credit score will come down, and it will be difficult for you to get financing when you need it the most.
3. Using Debt Settlement
If you still see yourself running into debt until a point comes when you cannot make further repayments, try to opt for credit card debt settlement. By this method, a professional debt settlement company will negotiate with your creditors and offer them a reduced payment. This will allow the creditors to retrieve at least a portion of what you owe them.
The alternative is if you come to the point that you have incurred a huge amount of debt, you have to file for bankruptcy. This can set you back financially and have a drastic effect on your credit report. However, it also means that you won't have to pay your creditors anymore.
As a result, they often settle for a reduced payment and write off the remaining balance. It still hurts your credit history, but it is still a better alternative than filing for bankruptcy.
4. Pay More Than the Minimum Bill Amounts
Most of the time, consumers only make the minimum payments on their credit card bills. While you can do this once or twice, considering everyone can have some other important expenses to meet at some point, refrain from making this a habit. Remember, by making the minimum payments, you are simply putting off paying the outstanding amount, which will only keep on increasing with time as it incurs interest. You will run into debt sooner or later.
By making only the minimum payments, you will be nowhere near paying off the debt. Hence, always try to pay more than the minimum amount each month. This way, you can prevent creating a backlog of unpaid amounts. Do this each month by reducing your credit card use as much as possible, and you will be able to pay off your debts eventually.
5. Use your Credit Utilization Rate to Manage your Debts
The credit utilization rate is the ratio that shows how much credit you are eligible to get versus how much credit you use. For example, if you are eligible to get credit for $20,000 and have used credit of $8000, your CUR is 40%. The lower the rate is, the better is your credit score. It shows that your credit cards aren't maxed out.
If the rate is very high, you are closer to maxing out your credit card, and you should curtail your expenses as soon as possible. A low CUR means that you are a responsible consumer, and your high credit score will make you eligible for getting financing when you need it the most.
By being vigilant about your expenses and by using your credit card responsibly, you will be able to manage your finances well enough in 2021.