How To Reduce Credit Card Charges?
How Can I Reduce Credit-Card Charges?
If you are paying interest on a credit–card balance, or on multiple cards, there could be ways to reduce the amount that the debt is costing you. This guide will explain the main options you have for paying less interest on credit cards.
Pay More Each Month
As tempting as it can be to only pay the minimum each month and leave more cash in your pocket, in reality all you are doing is extending the length of time you will be in debt – and paying more out in interest for the privilege.
Another impact of making small regular payments is that this will show up on your credit file, which could mean other companies make assumptions that you are struggling to pay off debts. This could make a lender less inclined to provide you with a loan or mortgage in the future.
Paying as much as you can afford to each month will make a much bigger impact on your balance and help get you out of debt quicker, which should always be the goal.
Prioritise Your Payments
If you are carrying balances on multiple credit cards and store cards, it’s important to understand which one is costing you the most and then prioritise paying off that one first.
As a rule, store cards are more expensive than credit cards, so it generally makes sense to pay them off the quickest.
Make sure you understand the different rates of interest you are paying on each card – this can vary according to the type of balance. Generally, cash withdrawals attract the highest interest rate, followed by purchases and then balance transfers (depending on the type of balance-transfer deal you are on).
Make the biggest monthly payment you can afford to the card costing you the most, then work down the list in order of cost. Always make sure, however, that you pay at least the minimum payment to each card, otherwise you will incur extra charges and interest and possibly affect your credit rating.
Transfer Your Balances
Many credit cards offer promotional rates of 0% on balance transfers for a time-restricted period. Depending on your credit rating and the credit limit you are offered, you could move one or more of your existing balances to a new card and pay no interest during the promotional period. Consolidating your debts in this way can make you feel more in control, and you have the benefit of seeing everything in one place.
It’s still a good idea to make the highest possible payment you can afford each month, to clear the biggest chunk of the debt that you can during the promotional period. Always remember the goal is to be clearing the debt and the 0% offer will end at some point, and you will then start paying interest on the remaining balance.
You also need to consider that there is usually transfer fee of between 1% and 3%. This gets added to the balance on your new card.
Any financial expert will tell you that it makes no sense to have savings when you have debt to pay off. Using your savings to clear some or all of your credit–card debt will mean you pay less interest on any remaining balance, and this will always outweigh any interest you would have earned on your savings.
Never Make Cash Withdrawals
Cash withdrawals on credit cards are an extremely expensive way to borrow money. Not only will you be charged a fee for the withdrawal itself, but that portion of your balance will attract a higher interest rate than purchases.