Millions of Americans use credit cards responsibly every day to build up good credit that can be used for a home loan or to buy a car.
While credit cards can be a great financial tool, they also can present a risk of running up large amounts of debt. If you have a credit card in addition to your checking account, it is important to know about responsible and safe spending habits. If you find yourself using your credit card often, you run the risk of accumulating too much debt that can be hard to pay off. To reduce credit card debt, here are a few things you can do:Take a hard look
Before you can deal with reducing your debt, you need to know how much you owe. At this stage, you need to face the honest truth and forget guessing how much you need to pay back. Take a look at your credit card statements and review your charges. Look for any errors or fraudulent charges. If there aren't any and your outstanding debt is substantial, check to see what you bought and where you might have splurged too much. Determine the total amount that you owe and monitor where you have been using your credit card instead of paying cash. Write down the total amount to give yourself a visual of how much actual debt you have.Deal with interest
Many people are hit the hardest with interest rates when they have a large outstanding balance at the end of the month. If you can't pay off your bill in full, then you will be charged on the remaining amount. This can increase the amount of your total debt and make it harder to pay it all back. If you find yourself in this cycle every month, consider calling your credit card company and asking for a lower rate. Depending on your balance, lowering your interest even one percentage point could mean a difference of hundreds of dollars. Many people aren't aware that they may be able to negotiate a lower rate with their credit company and save themselves money in the long run.Monitor spending
Once you know what you owe and how much interest you are paying on your balance, you need to start to monitor your spending. Keep track of everything that you spend money on to gain perspective on how frequently you use your card. Write down your most important expenses first that you might put on your credit card, such as utility bills and insurance costs, but also include your monthly credit card payments as a priority. You can track your spending by writing it down or utilizing financial software to help you manage your expenditures.
BudgetThe final step toward tackling your credit card debt is to start budgeting. Every household - no matter the income range - should have a budget for expenses. Without one, there is no game plan for cutting back on spending and reducing debt. The first thing to do is write down your total monthly income and all your expenses. List the most important expenses first that have to be paid each month, such as your mortgage. These costs typically do not change from month to month and should be addressed first. Allocate funds from your income to pay off these, then start with other expenses. Things like eating out and entertainment are areas where spending can easily be reduced. Give yourself some spending money for these other categories, but make sure that you are staying within your limits and not exceeding your income. Paying off credit card debt can take some time, but with a budget and a plan, it can be done.
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