According to a new study, about three in five U.S. consumers admit to living paycheck to paycheck as they battle to make ends meet and afford the escalating expenses of groceries, petrol, and practically everything else.
Furthermore, more than a quarter said they spent more than they earned in the previous six months.
Credit cards may be used by certain individuals to help pay for costs. Despite this, many people who live paycheck to paycheck have had difficulties making timely payments on cards with higher-than-average balances, according to the poll.
So, how can you manage your credit and credit cards better during a financially tight period? Here are three starting points for you.
1. Reduce your credit card’s interest rate
The Federal Reserve is attempting to control inflation by raising interest rates to reduce demand. However, this raises the cost of borrowing anything from auto loans to credit cards significantly. According to Lending Tree, the average annual percentage rate on a new credit card is currently more than 20%.
Switch to a 0% interest balance transfer card or transfer your existing balances on high-interest credit cards to one that gives no interest, at least for a period, to pay little or no interest on your cards. Many of these cards offer 0% introductory rates for 12 to 15 months, with some going as long as two years.
2. Use autopay and alerts to manage balances
According to a VantageScore analysis, the average credit card amount was $5,219 in May 2022, a $500 rise in a year. Credit card delinquencies — payments that are 30 to 90 days late — have also been rising higher since spring 2021, the research showed.
Set up automatic payments to ensure that at least the minimum amount required (or better yet, a bit more money) is taken out of your bank account and paid straight to the card issuer every month.
Then, on your phone or laptop, set calendar reminders and alerts — or use an actual calendar — to note the days when the payment will be pulled, as well as the date the payment is due. Check that the transaction and payment were completed on both dates.
You want to avoid late fines, which may cost you up to $30 for the first offense and $41 for successive offenses. And, if possible, attempt to pay the debt in full each month to prevent interest.
3. Do not rely on personal loans or purchase now, pay later schemes
Some people may choose to combine their credit card debt with a personal loan. Depending on your credit score, the interest rate on a personal loan may be cheaper than the rate on your current credit card. In general, the smaller the rate, the greater your score. According to Bankrate, personal loan rates presently vary from 3% to 36%.
Personal loan rates, on the other hand, are variable and will rise if the Fed raises interest rates. Making on-time payments on your loan regularly will help your credit score.
However, some financial experts are concerned that once customers have shifted amounts to a personal loan, they may return to building up debt on their credit cards. Those of you who are inclined to do so should have someone hide the cards for you.
Meanwhile, as buy now, pay later goods gain popularity, an Experian survey revealed that four out of every five consumers utilize BNPL to avoid credit card debt. The option to buy products with what are essentially short-term loans, make a down payment, and then pay in three further installments over six weeks using BNPL might be enticing.
