Better manage credit card debt with these tips | Article

FORT LEONARD WOOD, Mo. — Fall has arrived, and with it comes the annual holiday shopping season. While credit card debt can pile up at any time of the year, people tend to spend a little more as they look for the perfect gifts for friends and loved ones. Americans averaged more than $1,000 in holiday-related debt last year, and the majority said they would be unable to pay if off by January.

Below are some tips to help avoid or reduce credit card debt.

Make a budget and stick to it

It’s difficult to spend within reason or plan savings if you don’t know how your monthly spending compares to your take-home pay, or where that money is going. That is why you should rank-order your expenses – including debt payments, emergency fund contributions and other savings – and trim the fat, if necessary. Most importantly, once you develop your budget, stick to it.

Build an emergency fund

With a safety net of cash to fall back on, you won’t be as likely to fall behind on your bills in the event of emergency expenses or unplanned joblessness. Your goal should be to gradually save about a year’s worth of after-tax income. In other words, set aside a little bit every month until you’ve got a nice cushion.

Improve your credit

This might sound a bit counterintuitive, seeing as more credit could mean more debt. But improving your credit standing will have a dramatic impact on the cost of your debt. And reducing the cost of your debt will allow you to pay it off faster. Better credit can also make it easier to find a job or a place to live, both of which impact your bottom line. You can check your latest credit score for free and get personalized credit-improvement tips on www.wallethub.com, and you can pull your credit report at www.annualcreditreport.com.

Try the island approach

The island approach is a strategy that involves using a collection of credit cards, with each serving a specific purpose. For example, you could transfer your existing debt to a zero-percent balance transfer credit card to save on finance charges and get out of debt sooner. And you could use a rewards card or two – perhaps one with travel rewards and one with cash back, or maybe a store credit card – for purchases that you’ll be able to pay off by the end of the month. This will enable you to get the best possible collection of terms. It will also tell you when you’re overspending. Finance charges on your everyday spending cards will signal a need to cut back.

Repay your most expensive debt first

Most people with serious credit card debt have multiple balances. If that’s the case for you, try the “avalanche method.” That means putting the majority of your monthly debt payment toward the balance with the highest interest rate and making the minimum payment required on the rest. Once your most expensive debt is paid off, repeat the process until you’re debt free.

Evaluate your job situation

In some cases, all the budgeting and planning in the world won’t be enough to solve your debt problems. You may need to explore whether higher-paying opportunities exist for people with your background or consider acquiring some new skills to make yourself more marketable. This may require a bit of an investment in yourself, but as long as you get a worthwhile return, it’s money well spent.

(Editor’s note: The appearance of external hyperlinks does not constitute an endorsement or recommendation by the U.S. Army.)

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