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Contributed by Beth Nori, CFP® of BFG Financial Advisors
Debt is something a lot of people struggle with, and credit card companies prey on those likely to find themselves in debt. My first piece of advice is, of course, to avoid credit card debt all together. But if you do find yourself struggling to pay off credit card bills, there are some strategic methods that may help.
If you’re in debt, a budget can be a great tool. It will allow you to better track your inflows and outflows and get a better grasp on your expenses. It is easy to overspend when you’re not aware of where each of your dollars is going.
Creating a budget can seem overwhelming, but there are many tools available online to help you, and even some that can automate the process or find recurring expenses you didn’t realize you were paying.
Getting on top of your spending is the first step.
If you have accumulated balances on multiple credit cards, create a plan to pay down your debt. The best way to handle this is to determine which credit card has the highest interest rate. Add any excess payments to this card, while paying only the minimum payment towards other credit cards. This will allow you to be able to get rid of that debt faster and potentially save thousands of dollars in interest.
Credit card companies often offer perks for transferring existing balances—including a 0% interest rate for a set amount of time. Naturally, this is likely to come with an initial fee equal to a percentage of your transferred balance. If that fee is lower than your current interest rate, it is a good idea to make the transfer.
However, be sure to read the fine print and make sure there are no adverse consequences, such as an inordinately high fee, and be aware of the increased interest rate if the balance is not paid during the introductory period.
Once you’ve successfully paid off credit card debt, start putting as much money as you can into an emergency fund. This fund, which should be held in a savings account that isn’t invested, will help you avoid future debt by giving you a financial safety net in emergencies. Instead of putting unexpected expenses on a credit card, you’ll have the cash available to cover it.
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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results. Kestra IS and Kestra AS do not provide tax or legal advice.
Tags: budget, credit cards, debt, payment plan