Charging purchases to your credit cards is easy—sometimes a little too easy, it turns out. More than 120 million U.S. consumers currently carry debt on their credit cards, putting them in a potentially volatile financial situation.
If you’re one of those people facing high credit card debt, know that taking a proactive approach to paying down this debt is the best way to mitigate the damage done by credit cards and return your finances to the good standing they’ve known in the past!
Here’s a look at the reasons why paying down this debt is important—and how you can develop a strategy to achieve this goal.
Credit Card Interest Charges a Premium
Compared to other forms of debt, credit cards bring some of the highest interest you can expect to be charged, with APRs routinely ranging between 20-25 percent. This can amount to a 2 percent charge on your balance every month—which adds up quickly, even as you try to pay down your balances.
The risk of credit card debt is that, once you start carrying a balance, it can be difficult to dig yourself out of that hole. You could end up paying hundreds or even thousands of dollars in interest simply by not paying off this debt quickly enough.
High interest is one of the main reasons some consumers might be counseled against using credit cards if they don’t have strong money management practices. But even smart, careful spenders can find themselves weighed down by credit card interest charges resulting from unexpected expenses they put on their card.
No matter how you end up carrying a balance, the path forward is the same: If you want to minimize the cost of credit card debt, make a plan to pay it off quickly.
High Credit Card Utilization Drives Down Your Credit Score
Good credit begets more credit—but when you’re carrying high credit card balances, your financial reputation can quickly suffer.
High credit card utilization is tracked by the major credit bureaus, and it can cause your credit score to drop—which can affect everything from your ability to qualify for new credit to the interest rate you receive on a home mortgage or other forms of debt.
In other words, credit card debt can make it tougher to access other financial products and to get the greatest value possible from those products. But the solution is straightforward: If you want to boost your credit score, paying down debt is a quick way to make that happen.
Minimum Payments Often Aren’t Enough
If you’re hoping to pay off credit card debt by making minimum payments, you may want to rethink that strategy. Minimum payments are often barely enough to cover the interest you’ve accrued over your latest billing cycle.
When you make a minimum payment, it’s possible that most—or maybe all—of that progress will be wiped out by the interest charged to your account. If you want to get serious about paying down credit card debt, you’ll need to come up with a plan to go beyond the minimum and accelerate your repayment schedule.
Don’t Let Credit Card Debt Drag You Down
If you’re struggling to find a clear path forward to pay down credit card debt, talk to a financial professional about the challenges you’re facing. Other options may exist to get your debt situation under control.
Debt consolidation, balance transfers, and other financial services can offer relief from credit card interest rates that mitigates your financial costs and gives you a clear path to debt-free living.
Looking for a step-by-step guide to paying off credit card debt? We have you covered. Download a free copy of The Definitive Guide to Paying off Credit Card Debt here.