Let’s face it, credit cards are a handy tool but they also give us anxiety. So while collecting credit card rewards and earning signing-up bonuses are fun, we all worry about accruing too much of a debt and the mounting interest which comes with it.
Rejoice as a simple debt-proofing strategy may be able to stop you from borrowing more than you can pay back. Follow these 3 steps to protect yourself and your family from that seemingly never-ending debt cycle which is sourced from a credit card.
AN EMERGENCY FUND CAN SAVE THE DAY
Life has its own twists and turns — medical debt, job loss, car repairs and other similar emergencies. But what id you build up an emergency fund instead of relying on your credit card to fund these unforeseen purchases? This rainy day fund does not have to be the sum total of 3-6 months of your living expenses, but a small initial fund is good enough. About $500 should be enough for things like car repairs or small medical emergencies. But it is important to start somewhere, even if it’s as small as $25 per week. You can keep draining it and refilling it as and when needed, it’s like an ongoing gift. Not only will it be a reassurance to you that you have a contingency fund, but also the peace of mind when you know that you will not have to depend on someone else to pay your bills.
It’s best to pool your fund in a savings account, which does not levy a monthly fee. Although the annual yield would be low, with the national average for regular savings accounts hanging at a measly 0.06%, but you could search for accounts having an Annual Percentage Yield (APY) of 1% and more. For more progress, you can pay yourself automatically as you route a part of every month’s paycheck towards your contingency fund. Some other sources of income, which can substantially increase your fund – bonuses, tax, refunds, raises, monetary gifts etc.
A LOW-INTEREST OFFER NEEDS A GOOD CREDIT SCORE
An emergency fund, although practical, may not be sufficient to pay for all expenses, and that is why you need a solid plan B to fall back on. Try applying for and utilizing any credit card with a 0% APR (Annual Percentage Rate). These cards will save you money on their interest rate over a period of time, but qualifying for one needs a good credit score of 690 or higher.
To maintain a good credit score, you have to pay all debts on time and make use of 30% or less of your credit limit. On the basis of what kind of emergency you are facing, you might not have enough time to apply for a card and sit around until it arrives. Fortunately, people with good credit scores have other options. For instance, a personal loan has a higher and faster approval rate, can borrow larger suns of money and for a fixed term too. You need to weight the cost of fees and interest offered before making a decision and taking the plunge. In a few instances, you might not even have to borrow any cash at all. Like in the case of medical debt, the provider could help you apply for medical aid or set up a payment plan for you.
IF YOUR DEBT BEGINS TO GROW, BECOME AN EARLY BIRD
If your credit card interest has begun to pile up then you have to get to work before it turns into a bonfire of a financial issue. As the final assault on credit card debts, you can pick up another job, trim down on any and all unnecessary expenditures or apply for a balance transfer credit card, which allow you to shift the debt from a credit card which is high interest to one which has a lower APR.
But, of course, only a good credit score would help determine if you would qualify. An ideal card for balance transfer would have no yearly fee and give you enough time to pay up the debt. If you cannot qualify for such a credit card and if you are unhappy with the credit limit being offered to you, then you need to consider other options. If you have multiple creditors, you should seek help for a professional debt/credit counselor to establish a budget, set up accounts and manage your debts successfully.