Many cardholders find themselves trapped in the cycle of debt as they carry a balance on a credit card from month to month only deepens debt. Findings from a survey reveal that many cardholders only pay the minimum amount on their credit cards while the interest accumulates. This not only becomes a cost addition but also a stretch repayment, making it difficult over time to meaningfully reduce the balance.
A recent LendingTree survey suggested that about 41% of US credit cardholders only pay the minimum amount on at least one of their credit cards with this percentage rising to 58% among Gen Z – “a recipe for staying mired in debt.” It drops to 19% among Baby Boomers. An evaluation of more than 1,500 cardholders revealed that a US cardholder with debt carries a $7,756 balance. With the average Annual Percentage Rate (APR) on current card being 20.94%, a will continue to stay indebted for nearly 27 years and pay nearly $13,000 in interest.
7 strategies to get out of debt trap
The main purpose a credit card should typically serve is to allow the borrower to afford an expense in view of future income, repay balance in full each month when the salary arrives. Here are some tips to get out of credit card debt trap.
- Pay more than the minimum monthly dues from savings: By doing so, one can lower their interest rate each day and effectively pay off debt in a shorter time span.
- Convert debts into monthly EMI: Request your bank to convert your debts into monthly EMIs or take a personal loan with an interest rate that is lower than your current debt and apply it to credit card balances. Monthly fixed payment will make it easier to pay off debt.
- Set automated payments to avoid missing due dates: in your account and avoid penalties that are charged on missing deadlines.
- Use snowball approach: Target smallest to the largest due amount to pay off debts which will keep you motivated to handle the rest of the payments.
- Avalanche Method: Under this , one pays the minimum amount on all debts while putting extra money toward the balance with the highest interest rate. To become debt free quickly, prioritise highest rate of debt for repayment followed by next highest-interest debt.
- Limit expenses: Track of expenses, avoid overspending and build a realistic budget to balance savings and expenditure.
- Switch to cash: Start using cash to pay bills to prevent overspending, debt accumulation and track expenses as it promotes healthy financial habits.