Ravi Chandran
Have you gone a little wild with your plastic? Payday loans are useful to tame your credit card debt
By: Hitesh Khan/
They start out sounding like a good deal: Credit cards allow you to buy now and pay later. Plus, they are essential to helping you build a credit history and learning to manage debt responsibly.
But as bills come due and interest charges rear their ugly head, perhaps you have realised that you have gone a little wild with your plastic. After all, it’s a bit too easy to rely on your credit cards as a sort of get-out-of-jail-free card, allowing you to push your bills to the very back of your mind.
If you are thinking that payday loans are useful to tame your credit card bills, your Chinese New Year resolution this time should be to pay down your debt.
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There are six smart moves you can make with your credit cards to lighten your load, manage your plastic more effectively and regain control of your finances today.
1. Tackle high-rate debt first. Credit card debt is costly. The average rate on a standard variable-rate card is nearly 25% and it’s not uncommon for young adults just starting out to pay even higher rates. You need to get rid of that debt as quickly as possible, so if you carry balances on multiple cards, focus on paying off the highest rate cards first while continuing to make the minimum payments on your other accounts. And this rule goes for your other debt too.
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2. Put your payments on autopilot. Most card issuers let you set up automatic payments from a savings account and allow you to decide how much you pay. This strategy keeps that money from becoming a temptation for you to spend on something else because it’s already gone. It also helps you avoid late payments that can damage your credit score, cost you a bundle in fees and trigger an interest rate hike. Use our Budget Worksheet to take an honest look at your spending and see how much you can afford to pay each month. Then set your account on cruise control.
Payday loans are useful to get your debt under control, as you arrange to have your credit card balance automatically paid in full each month so that last-minute snags never stop you from paying on time.
But make sure you still monitor your statements, particularly if you make new purchases on the account. Automatic bill-paying can come with its own set of headaches.
3. Consider a balance transfer. No doubt you’ve seen offers with 0% or low introductory rates. If you’re confident that you can pay off your balance over the introductory period — typically six to 12 months, start shopping around for a low-rate card that will give you enough time on good terms. Check the contract for whether the low rate applies just to balance transfers or also to new purchases, and whether you’ll have to pay annual or balance transfer fees.
Be careful, though, because this is not the quick fix a lot of banks would have you think, and low APR cards tend to come with nasty fine print. Most will hit you hard when you slip — by missing a payment or letting a balance carry past the teaser period — so you need to be crystal clear on your card’s terms and exercise extra diligence to pay on time. And resist the temptation to bounce your debt around on card after card. It will take a toll on your credit score and will only delay the inevitable — you still have to pay.
4. Ask for a lower rate. Sometimes, a solution really is this simple. If you are thinking that payday loans are useful, a few minutes on the phone with your lender could save you hundreds of dollars in interest charges. Talking to your credit card issuer and letting them know your situation is always a good idea. If you have been a good customer they may be eager to work out a solution, which could include a temporary suspension or permanent lowering of your interest rate.
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5. Never max out a card. This is, of course, a good strategy to avoid getting in over your head in the first place. But it can also salvage your credit history. If you’re currently maxed out, try to get your ratio down into the safety zone as soon as possible.
6. Think twice before closing an account. If you have real trouble controlling your spending and are thinking that payday loans are useful, it’s better to close a card than to rack up more debt. But always close newer accounts first and never close a card within six months of applying for a loan.
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