Too much credit card debt can cripple cash flow and affect your ability to obtain finance for other items.
Adopting a strategy to minimize credit card debt is crucial if you want to take control of your finances. The trick is to decide upon the one that is right for you.
There are two basic strategies – which is best will depend upon your circumstances and the level of debt.
Option 1:- This is sometimes called the snowball method, which involves a disciplined approach to paying down credit card debt. With this option, you identify all your credit card debt and which credit card is costing the most in interest. You focus on paying this debt down first while maintaining minimum payments on the others. Once one card has been paid, you can use the payments you were making on that one to apply to the next most costly card. The cumulative effect of this strategy “snowballs,” and if you can stick to the plan, you will see your credit card debts significantly reduce.
You can speed this option up further by looking for a 0% balance transfer offer. These offers will allow you to transfer your existing credit card balance to a new card with 0% interest payable on the balance for a set term. If you take advantage of one of these offers, be sure to cancel the card that you transfer the debt from. It pays to be aware of what costs are after the honeymoon period. Annual fees and ongoing rates may eat into any savings initially made.
Option 2 involves consolidating your credit card debts into one large debt with one repayment. The advantages of this strategy are twofold. You have one payment, and the interest rate is usually lower than credit card interest rates. The two most common lump sum options are a simple personal loan arrangement or a debt consolidation loan that involves your existing home mortgage. There are advantages and disadvantages of both options. How debt consolidation could affect your plans needs to be considered.
When considering option two, it is wise to seek advice about the full ramifications of debt consolidation. A consultation with a finance broker at Australian Finance Hub can help you identify the right option.
To arrange a consultation, please call the Australian Finance Hub today.