Having to pay down your credit card debt can be a huge burden on your finances.
It’s not surprising, therefore, for you to use any approach or technique just to get rid of your debts. Before deciding on how to best handle the settlement of your credit card debts, however, do study all your options carefully. Be aware that any step you take could have possible legal complications that could aggravate your current financial woes over your mounting credit card debts.
To help you in your decision making process, here’s a rundown of four common mistakes in credit card debt settlement that you should try to avoid. They are basically methods you may think would help reduce your credit card balances but they do carry some risks that you should watch out for.
1. Closing Your Account
Many people are getting flustered with their credit card debt, fearing that with the high interest costs, they may not be able to settle their balances. For some, the fastest way to solve their dilemma is closing their credit card accounts. However, this solution may give rise to another credit-related problem. Sudden closure of accounts usually causes a substantial drop in credit score. Instead of closing your accounts, what you can do is to resolve that never again will you use your cards. Honor this commitment and don’t bring your cards with you when shopping to avoid temptation. Then, you should exert all efforts to settle any and all outstanding balances you have on your other credit cards. And while you’re at it, make sure that you do not sabotage your efforts by charging even a small amount to your credit account.
2. Consolidating Debt
Debt consolidation is fast becoming a popular option among people who face difficulties in paying multiple debts. Although this approach has been effectively used by a few to straighten out their financial mess, it does not work for everyone. If you have not heard of debt consolidation before, it is a method where an individual takes out a big loan to pay off all his or her other smaller debts. What happens next is that the borrower needs to pay only one creditor. This option offers the convenience of making a single payment and you can probably negotiate for a lower interest rate although it could prolong the loan term or repayment period. You should understand that debt consolidators are also running a business, which means they need to earn from you. They usually charge up-front fees for their consolidation services. Other than this additional financing cost that you have to bear, you should know that your credit report will also include a statement that you received third party assistance for your other debts.
3. Paying High Interest Rate
Sometimes, card holders may feel desperate to settle their credit card debt that they are more than willing to continue paying high interest rates. However, this is a huge mistake. If you think about it, credit card companies would also want you to pay off your account balances so they will have fewer past due accounts. This means they are amenable to reducing your interest rate if you negotiate with them. Just make sure to pay all due amounts promptly to avoid penalties that will only bloat your balance.
4. Paying Only the Minimum Amount
Many people tend to pay only the required minimum payment amount stated in their monthly statement and this is just another big mistake. When you charge your purchases against your credit card, you can easily forget the affordability factor. One purchase usually leads to the next and excessive spending ultimately results into rising credit cards debt. Credit card companies don’t seem to mind even if only the minimum amount due is paid since they still earn interest on your account. However, that will not help settle your credit card debt. If you want to reduce your outstanding balance, try to pay double the minimum amount each month and pretty soon, you will be out of your financial quagmire.
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