First of all, kudos to you for working hard to get rid of your credit card debt. It’s hard work and it takes persistence, but you can do it! Here are just a few more tips to keep in mind as you pay down your balance and head happily toward a debt-free credit card life.
Tip #1: Set up a budget
One thing that often trips up consumers when they’re trying to pay off credit card debt is that they don’t have a budget. A budget will help you live within your means so you have enough cash flow to pay all of your bills on time.
Without a budget, you won’t know if you’ll have the money in the bank to make your monthly payment on your balance transfer card. Think of your budget as the blueprint for your financial life.
Tip #2: Track your spending
You’ve made a commitment to pay a certain amount every month on your balance. But if you don’t track your other spending, you could end up overspending in another area and not have the monthly payment for the balance.
Here’s another area where the budget is helpful. If you’re over budget in one area, say household expenses, you can look at your budget numbers to find a place where you can make up the difference. For example, maybe you don’t go to the movies for two weeks.
Tip #3: Don’t freak out if it doesn’t always go smoothly
Life gets messy sometimes, doesn’t it? So if you have an unexpected expense and you can only make the minimum payment on your balance transfer credit card one month, that’s okay. Do the math again and adjust your monthly payment to reflect the new payment amount.
If you can’t increase the amount, that’s okay, too. Just know that you might have a small balance when the intro period ends. The important thing is to stay calm and flexible. Life doesn’t always run on schedule, so get back on track when you can.
At the very least, you’ll have reduced your debt and you can try again with another card in the future.
Tip #4: Get help if you feel like you’re drowning in debt
Sometimes a balance transfer credit card isn’t enough to stop your debt from snowballing. Maybe you’re having a health crisis or you suddenly lost your job. Or maybe you have so much debt, you finally realized that you can’t maintain the monthly payments.
Don’t beat yourself up if you find that you’re in over your head. This happens to people every single day, so you’re not alone. The important thing is to ask for help. Contact the National Foundation for Credit Counseling for a referral to a counselor in your area.
Tip #5: Don’t close your old credit card account
Closing an account can have a negative impact on your credit score, so generally, this isn’t recommended. One of the factors in your credit score is the utilization ratio. You learned earlier that this is the amount of credit you’ve used compared to the amount of credit you have available. The lower the ratio, the better.
When you close a credit card, you lose the credit limit for that card and so that reduces your available credit. In turn, this increases your utilization ratio, which can reduce your score.
As you pay down your debt, this will have a positive impact on your score. The amount of credit you’ve used will decrease, which will decrease your ratio. A lower ratio can improve your credit score.
Now, if you believe you’ll use this credit card and increase the debt you already have, that’s another issue. It’s important that you take the necessary steps to prevent you from spending. You could always cut up the card or put it in the freezer, but you’d still have access to the account number and you’d be able to buy stuff online.
If you feel that closing your old credit card account is the only way to prevent more debt, then by all means do it. At the end of the day, make the decision that keeps you out of debt.