The Associated Press reported today that consumer prices jumped 1.1% in June – the second-fastest inflation increase in the last 26 years. Consumer inflation rose 5% in the past 12 months, reflecting the largest annual increase in more than 15 years. These numbers may not seem like a lot, but it’s an alarming trend for the average consumer; especially if you work in some big corporation and only get a 3% raise per year, if you’re lucky. With economic times being tight, consumers must find creative ways to save money just to keep afloat. One of the most effective ways to do this is to find creative ways to manage your credit card debt.
Credit card interest drains your cash.
For most people, it isn’t the credit card itself that causes a problem, but the credit card interest. If you’ve got a $2000 credit card balance that you’re not paying down, you could be paying over $600 per year in interest with a high-interest credit card. Multiply that by the average consumer debt of $4,000 per individual or over $8,000 per household, and you could be paying an extra $200-$300 per month in interest alone. That money never gets applied to your credit card balance, so if you actually want to reduce your credit card balances, you’d have to pay $300-$400 per month on your credit cards. With a weakening dollar amidst rising inflation, that’s just not practical for many households.
Take advantage of 0% APR balance transfers.
One effective way to manage your credit card interest and reduce your total debt load is to take advantage of 0% APR balance transfers. Resist the temptation to do a wholesale transfer of all your credit cards – that’s not an effective strategy here. To take advantage of 0% APR balance transfers, carefully read the fine print. Find out how long the 0% rate is effective. If you pay 0% for six months, do the math and calculate how much debt you could pay off in 6 months.
If you’re already paying $200 per month in interest, and you could be paying that on an interest-free account for 6 months, you could pay off $1,200 in debt without increasing your payments. If you can afford to increase your payments by another $100, making it a total of $300 in monthly payments, you could afford to pay off $1,800 in credit card debt. This is a significant chunk of credit card debt for an individual, and even a good dent for household debt.
Once you’ve effectively paid off that 0% APR balance transfer offer, take another look at your finances. Are you still paying on a high-interest credit card? Look for another 0% APR offer, transfer a reasonable balance and pay it off. You can also improve your credit score in this manner by reducing your total debt load, although that would be temporarily offset by opening new credit card offers. In the long run, though, you’ll save yourself tons of money in interest and actually pay down your credit card debt. Your credit score will thank you in the next few years.
-Money Maven
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