If you are using your credit cards to supplement your income, you should definitely worry about paying down your debt. Credit card debt can accumulate because of irresponsible spending, but many people are relying on them to help pay their expenses simply because they have become accustomed with a higher standard of living. When you aren’t able to pay down your entire credit card balance off within a few months, you should begin to worry.
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Most credit cardholders have at least a moderate amount of credit card debt, but even those owing small amounts should be concerned about paying their bills. Qualifying for a mortgage, auto financing, or even a student loan will be more difficult if you are saddled with credit card debt. In addition to building a budget, the Federal Trade Commission recommends limited usage of credit cards for household expenditures.
Having Too Much Credit Card Debt
According to Suze Orman, most consumers can tell when they have too much credit card debt the moment that they start being denied for additional lines of credit.
If you have a high debt to income ratio, being approved for even a small, personal line of credit will be nearly impossible.
Another way to tell that you have too much debt is by looking at your monthly payments. If you are trying to pay down your credit card bills, but you have barely managed to make a dent in your total debt, it may be time to try out a different strategy.
Talking to a financial planner or a credit counselor can help to you determine the amount of credit card debt that you can safely carry. Remember that credit cards can be used to make major purchases, but they can be useful during financial emergencies. If your credit cards are currently maxed out, don’t expect to be approved for a new one.
Best Way to Pay Your Credit Card Debt
Consumers that have a single credit card can easily pay down their bill without necessitating a lot of planning. However, those with multiple credit cards may need to come up with a detailed plan. The snowball method entails paying down credit cards with the lowest balances first so that you can save time. Credit card consolidation may give you access to a great interest rate, but you probably won’t be able to keep your accounts open.
The vast majority of credit cardholders have been able to effectively manage their credit card debts by budgeting and mindful spending. Keep track of how often you use your credit cards, and then find ways to change your spending habits. Using only cash to pay for purchases, avoiding eating out, and making payment arrangements with creditors are great ways to save.
There is no right or wrong way to pay down credit card debt, but the very worst thing that you can do is to ignore it. Unpaid credit card bills continue to collect interest, so get a handle on your debt now before you feel trapped. Credit card debt can also be eradicated during bankruptcy, but this is not considered a valid repayment method.
Determining Your Utilization Level
Your utilization level is the amount of money that you have changed on your credit card divided by your total credit line. In other words, consumers that have gone over their credit limits have utilization levels of more than 100%. The lower your credit card utilization levels, the less your credit card debt is.
Ideally, consumers should use no more than 20% of their available credit, unless they have specifically planned to make a major purchase. Even then, high credit card balances should be paid off as quickly as possible so that the interest charges do not add up.
Lower credit card utilization levels are good for boosting credit scores; however, if your credit card balance is too low, you may receive the opposite reaction.
You don’t have to carry a credit card balance, and you don’t need to make payments in full each month, but you should be mindful of how much you charge to your credit cards. Remember that your utilization levels will be different with each credit card, so calculate them often, and see how much you can lower your debt within the next few billing cycles.
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