Credit cards can be a valuable asset in reducing debt, but it can be overwhelming to decide which one to choose and how to use it effectively. We understand how challenging it can be, but we’re here to help. In this blog post, we will guide you through the best way to utilise credit cards to reduce debt and help you achieve financial freedom.
1. Look for low-interest credit cards
The interest rate on your credit card is the most significant factor to consider when it comes to reducing debt. If you have a balance on your current credit card, look for a new credit card with a low interest rate. This will enable you to transfer your existing balance to the new card and pay off your debt faster. Use sites like CompareTheMarket, MoneySupermarket or Money.co.uk. One of the key things to look out for is the Annual Percentage Rate (APR). Think of APR as the total cost of borrowing, expressed as a percentage. It includes not only the interest rate but also any additional fees and charges associated with the loan or credit. For example, if you’re considering a credit card with an APR of 18%, it means that for every £100 you borrow and don’t pay back within a year, you’ll owe an extra £18 in interest and fees. Understanding APR is essential because it allows you to compare different financial offers accurately. A lower APR generally indicates a cheaper way to borrow money, while a higher APR means higher borrowing costs. So, always be aware of the APR when assessing financial options, as it directly impacts your financial well-being.
2. Make a budget
Before you start using your credit card to reduce debt, it’s essential to have a budget in place. This means knowing precisely how much money you have coming in and going out each month. Once you have a budget, you can use your credit card to pay for essential expenses and make payments on your debt. Contact us, and we can provide you with your very own Money Moxie Map to guide you through your income and expenses. Read our blog on How to Budget.
3. Pay off your balance in full each month
If you’re using your credit card to reduce debt, it’s crucial to pay off your balance in full each month. This will help you avoid interest charges and keep your debt from growing. If you can’t pay off your balance in full, try to pay as much as you can each month. For other ways to reduce debt, check out our Guide to Effective Debt Reduction and Consolidation.
Searching for credit cards that offer a zero percent introductory APR on purchases can be a wise financial strategy. These cards provide a grace period during which you can make purchases without incurring any interest charges for a specified period, often ranging from 6 to 18 months. This can be especially beneficial when you have planned purchases or need to spread out the cost of a large expense over time. It’s crucial to compare the length of the zero percent introductory period, as well as any additional fees or requirements, to find a card that best suits your needs. While these cards can offer significant savings, it’s essential to manage your finances responsibly, pay off your balance before the introductory period expires, and avoid making additional large purchases until you’ve cleared your existing debt to make the most of this valuable financial tool.
4. Use your credit card for essential expenses
Using your credit card for essential expenses like groceries, fuel, and utilities can be an excellent way to reduce debt. However, we understand that it can be tempting to use it for other non-essential purchases. Stick to your budget and only use your credit card for essential expenses to avoid unnecessary debt.
- Debt Control: Limiting credit card use to essentials helps prevent the accumulation of unmanageable debt and reduces interest costs.
- Emergency Preparedness: By reserving credit cards for necessary expenses, you ensure you have credit available for unexpected emergencies.
- Responsible Financial Habits: Using credit cards selectively encourages disciplined budgeting and responsible financial behavior, ultimately contributing to long-term financial stability and better credit scores.
5. Take advantage of rewards programs
Many credit cards offer rewards programs that can help you save money and reduce debt. These programs can be helpful, but we understand that it can be confusing to understand how they work. Be sure to read the fine print and understand how the rewards program works before you sign up. Some of the rewards you can expect:
- Cash Back Rewards: Earn a percentage of your purchases as cash back, which can be redeemed as cash or statement credits.
- Travel Rewards: Accumulate points or miles that can be redeemed for flights, hotel stays, or other travel-related expenses.
- Points Rewards: Collect points for purchases, which can be exchanged for merchandise, gift cards, or experiences.
We understand how challenging it can be to navigate the world of credit cards. However, by following these tips and using your credit card wisely, you can reduce your debt and achieve financial freedom. Remember to look for low-interest credit cards, make a budget, pay off your balance in full each month, use your credit card for essential expenses, and take advantage of rewards programs when possible. We’re here at Money Moxie Mentor to support you on your journey to financial freedom.
