After the holidays, many American consumers find themselves with more debt than they feel comfortable having. With present purchases, expenses to visit extended family and grocery bills to pay for feeding family and friends at holiday parties, credit card bills can quickly get out of hand.
If the consumer wishes to pay this debt down and avoid the possibility of defaulting on his or her credit obligations, certain repayment tricks can help tackle this debt and get it under control.
Pay More Than the Minimum Payment
The last thing a consumer wants to do is to only pay the minimum payment on the credit card each month. While it is understandable that a minimum payment may be needed every now and then, all the consumer is usually doing by paying only the minimum listed on his or her statement is paying the interest that has accrued on the account that month.
If the consumer’s goal is to eventually pay off that credit card, paying only the minimum payment on a monthly basis will only draw out that eventual goal. It is almost always recommended that the consumer either pay the bill in full or pay an amount that is much higher than the minimum payment listed.
A New Repayment Method
A new repayment method has recently been discussed in a study produced by economic researchers at several different universities, including Harvard Business School, the University of Pittsburg, the Ohio State University, and the Yale University School of Management.
These researchers recommended consumers utilize a method that has them paying off specific expenses and not random lump sum payments. This method is also seen as a form of budget reckoning where the accountholder regularly reviews his or her credit card statements as soon as they are received, seeing where certain purchases are made and calculating how much will be paid toward the bill by adding up which expenses the accountholder wishes to pay.
For example, if the consumer has made several Christmas present purchases, he or she would add up all of those purchases and calculate the payment based on those total expenses. The experts in this research study believe that this method keeps the accountholder accountable for his or her purchases and will give them a sense of satisfaction that they are paying off a specific expense instead of just a random lump sum.
This method of repayment also forces the consumer to regularly review what types of expenses are being made each month. If the consumer struggles with overspending on the credit card, forcing that person to go through all of these expenses on a monthly basis can help him or her create and commit to stick to a future budget. It can also give the accountholder a sense of accomplishment when a big-ticket item that was purchased using credit is paid off in full. Many times, these big-ticket items can be what it takes to throw a balance over a threshold the cardholder is able to pay. The accountholder can even try dividing that big-ticket item into several distinct monthly payments, keeping track of these payments each month until that larger item is paid in full.
How to Pay Off Debt by Expense
However, this method is not without its challenges. One problem many cardholders discover is that their credit card companies may not offer a tool that allows them to do this easily. While some credit card companies offer a tool to help cardholders categorize their expenses, many are forced to do this independently.
Chase was one company that offered a tool, called Blueprint, that allowed its cardholders to pay off expenses based on categories. Blueprint allowed the cardholders to select certain purchase categories to pay off or even divide larger purchases into smaller, installment payments. However, because participation as so low, Chase chose to discontinue the service.
As a result, cardholders are left mostly on their own to implement this repayment method. It requires some discipline on the cardholder’s part and requires the person to do the math to see what has been spent and what should be paid each month.
Some that have utilized this method have found success in paying off their credit card debt and keeping that debt down to a manageable amount, according to this study.
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