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Learn how to pay off debt and save money at the same time.
The high-interest rate on credit card debt can be extremely demanding on your finances. And settling credit card debt is paramount as it will affect your credit score and accumulate interest if left unpaid.
On the other hand, having no savings is equally as demanding as it can wreak havoc on your overall finances if rainy days come unexpectedly.
So on your path to becoming debt-free, you must be wondering which is better: save money or pay off your credit card debt?
Well, the truth is, both are important, therefore you need to know how to pay off your credit card debt and save money at the same time. This article will guide you on how to make this possible regardless of how much you earn.
Tricks To Paying Off Credit Cards Quickly
The easiest way to get rid of your credit card balance is by mapping out a plan. Having a plan will keep you guided, from expenses to saving for your emergency fund.
Basically, there are three great ways to pay off credit card debt quickly. With correct budgeting, monitoring your credit card interest rate, and proper debt settlement styles, your debt will be off in no time.
Tracking your spending is a great way to get on top of your finances. Have a record of your income and expenditure, so you know where exactly your earnings are going. It is also important that you spend wisely as every little wrong spending decision will magnify the current situation.
You can create a budget and start tracking your expenses today. This will help you decide how much you can set aside for debt payment as well as savings.
Getting A Lower Interest Credit Card
Your current credit card may have several benefits that are no longer needed at the moment. Choosing a credit card with a lower interest rate at your bank will make debt payment a lot easier for you.
Although credit cards with lower interest rates have very little benefits, it is the best option at the moment. This will help reduce how quickly your balances rise, putting you in a better position to get it cleared quickly.
Debt Settlement Method
The avalanche method and the snowball method are great ways to get out of credit card debt.
The avalanche method is best where you have several debts with varying interest rates. It guides you on spreading the available amount for the different debts while allocating more money to the debt with the highest interest rate.
The snowball method will work perfectly to have different debts of varying amounts with almost the same interest rate. If you are trying to get started, snowball is excellent as you get to pay for the smallest debt first before the largest amounts.
There is no best when it comes to these two approaches. You only have to assess your debts then go with the method well suited for you.
How To Pay Off Credit Card Debt When You Have No Money?
The longer your debt lasts, the more it will take its toll on you. To clear your debts as quickly as possible, you will need to consider some strategic means. This includes:
Paying More Than The Required Amount For Your Credit
The required amount on most credit cards is so little, 1% or 2% of the debt. This is great as you may not be under any pressure. However, you must raise the bar for yourself. Work towards paying as high as you can monthly.
Find more free money to pay off debt. Paying higher than the set amount will reduce the length of the debt period. The shorter the debt period, the lesser you end up paying.
Consider Applying For Consolidation Loans
A consolidation loan can be the best way to pay off credit cards. All you have to do is apply for an amount that will cancel out all the others. It is a personal loan with a time duration that you can get from your bank.
It helps you organize your debt and get rid of piling interest. However, you must have a good credit score to apply for this. If you have defaulted in payment and it is reflected in your credit score, you may be ineligible for this.
Also, you need a high monthly income to be considered for this loan.
Cut Your Spending
You may need to cut down many expenses to get rid of your debt. This may mean sacrificing some things you desire and only purchasing things on your list of needs.
Buying sprees and extravagant spendings will hinder your plan to clear your debts. You will end up spending above your budget limit with little or no amount left to sort your debt. Then, the interest keeps rising. The sacrifice is only for a short while, and you will be able to get back to your old lifestyle once your debts are cleared.
Start A Side Hustle
One of the best ways to speed up this process is to raise your earnings. This may come from getting a promotion at work or landing a better job. While this might not be easy to do alone, getting the help of a career coach will do you some good.
Starting a side hustle is also another way to raise your income and get extra money. You can start a small business within your locality or virtually. Taking online courses will equip you with the right skills to get this started.
What Is The Best Way To Pay Off Credit Card Debt And Improve Credit Score?
Debts have a peculiar way of lowering credit scores. This is most common with revolving credits. Deciding to repay your debts is a great step, but you also need to work on your credit score.
The first step to achieving this is focusing on clearing your credit cards. The quicker you clear your debts, the closer you get to raising your credit score. Clearing all your debts will not magically raise your credit score, but it will stop it from falling any lower.
With plans to clear your debt in place, you need to work on your spending habits. Adjust your lifestyle and spend below your credit card limits. Start paying off credit card debt in full every month. This will save you from incurring more debt.
Avoid defaulting in your payments as much as possible. Every time you fail to pay, your credit score drops. Paying on time will help you avoid this.
While you follow all of these, it is important to calculate your credit score yourself. By learning how to calculate your credit score, you will know actions that will lower it and easily avoid them.
How To Keep Saving As You Clear Credit Card Balance?
Keeping up with your payment monthly can be challenging. In all of these, you may forget to put aside some savings. However, clearing credit cards should not stop you from saving for an emergency fund.
The emergency fund will be your cushion if you ever run into financial crises. The scenario will be a lot worse if you have no emergency fund to fall back to while you still have uncleared debts.
Hence you need to save while you clear your debt. Finance experts say emergency funds should cover for six months of all your calculated living expenses.
The easiest way to save for this is by splitting the amount into smaller sums and paying them regularly. However, such a plan would not be feasible considering you need to pay debts as well. The way to get around this is committing to saving, no matter how small.
This can be from sacrificing certain things you would have bought and converted them to savings. Regardless of how little, put a certain amount away monthly.
Revising your budget to include savings will go a long way. This would depend on how much you earn, your expenses, and the amount you have placed for debt payment.
The only way to keep saving while you clear your credit card is actually to save. Do not put a minimum limit on how much can be saved monthly.
This all bounces back to your current financial status. Analyze how you can go about his and save the amount that you can at regular intervals.
Frequently Asked Questions
Should I empty my savings to pay off my credit card?
Paying off credit cards with your savings is never a good idea. You need to have a cushion when a financial crisis arises. You should pay with your income instead.
Can paying off your entire credit card balance lower your credit score?
Merely paying off your credit card would not raise your credit score, but it would save you from paying huge interest.
Is it better to pay off all credit card debt at once?
Yes. Clearing your credit card at once will save you from incurring interest. Banks charge you interest if you carry a balance.
Final Thoughts On Paying Off Debt And Saving Money At The Same Time
Paying off debt has never been easy. Trying to pay off credit card debt and saving money at the same time will require a lot of mental strength and focus. There will be no perfect moment to start, but now. Focus on doing the little you can consistently. You will have your debt cleared sooner than you think.
So, are you going to pay off your debt or save money? Or both?
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