Have you ever wondered why, in spite of you faithfully paying off your credit card, your balance isn’t going down? There are a few reasons why your credit card balance isn’t budging. We’ll talk about those reasons and also how you can make your credit card balance budge.
Reasons why your credit card balance isn’t reducing
1. You are unaware of the interest rate you are charged on your card.
Interestingly, most of the credit card users don’t know what interest they are paying for using the credit card in spite of it being one of the most expensive forms of credit. Because you don’t know your credit card’s APR, you wouldn’t know what impact it has on your outstanding balance.
Find out what APR your credit card charges. It’s there on your recent credit card bill. Use a credit card calculator to determine how much you need to clear off the debt and then have a plan to clear it.
2. You pay only the minimum amount due.
As long as you’re only making the bare minimum payments, it’s going to take forever to clear the debt. And the longer you take to pay off the balance, the higher the outstanding balance will get because the interest would be added to it.
The right way to go about it is to pay more than the minimum. At this point, you can also consider a low-interest credit card consolidation loan to pay off the entire credit card debt. It will get you faster to clearing your debt and also save money in interest.
3. You rack up unnecessary charges.
You may be diligently making your payments every month. But one small mistake can make you suffer a setback – one credit cash withdrawal from an ATM, you are charged a fee; one missed payment or late payment, you are charged a fee; one overseas transaction with your domestic credit card, you are charged a fee.
All these instances may not be a regular thing for you, but every time you do it, the credit card issuer charges a fee or penalty, which gets added to the credit card balance. Worse is when the default or missed payment is reported to the credit bureau; your credit score gets reduced by a few points.
For missed payments or late payment, set up an automatic deduction, so at least the minimum amount gets paid. If you travel abroad often, it makes sense to have a credit card which can be used internationally without incurring any foreign purchase charges.
4. You’re still making credit card purchases
If you’re still making purchases using your credit card, your overall balance won’t go down as much. If you want to see progress, you would have to stop using your credit card and adding on more debt.
Create a budget. Try to manage your expenses with the cash you have at your disposal. Give up some of your non-essential spending.
The Bottom Line
If you think making your credit card payments is like running on treadmill – always on the move but reaching nowhere – then you should – know how much interest you are paying toward your credit card, pay more than the bare minimum, make your payments on time, not make credit card withdrawals, and stop using your credit card for everyday purchases.
If these things seem too much, there is always an option to take the benefit of low-interest instant debt consolidation loans to pay off your credit card. However, taking on debt to clear another debt may backfire if you are reckless in your spending and not disciplined enough to handle your finances maturely.
Financial Analyst, MoneyTap