Lower Credit Card Debt – Is This Really the Best Strategy Right Now?

One of the most basic principles of responsible personal finance is to help limit the amount of personal debt you have. A second commonly proscribed piece of advice is to make it a priority to pay off or lower credit card debt. However, with current economy in shambles and fear of layoffs and pink slips an increasing reality; is this still a good strategy? Here, we take a look at a few things to consider:

1. Are you at risk of losing your job?

This is very important because the greater risk you have of losing your job, the more seriously you must consider this issue. If losing your job has a medium to high probability, you may be far better off making the minimum payments only and saving the rest to help use an emergency fund to help pay for daily living costs. Another thing to consider is that in the current environment where lending options have shrunk and the available credit card offers has fallen off considering, you should recognize that paying off your credit may indirectly hurt your chances of having access to funds that a credit card allows. Worse this can happen at a time when you really need it if you lose your job.

2. Do you have a significant emergency fund of cash available?

Depending on your current situation, you may already have some emergency funds on hand. If this is enough to handle at least 3-6 months of costs, the best strategy will be for you to pay off or lower credit card debt. However, if you do not have enough funds for this period, you will be better off holding off on paying down your debt and only making the credit card payments.

3. How important is access to a credit card to your needs?

One common occurrence is that credit card companies are increasing the annual percentage rate of their credit cards. Now, you can turn down this increase, but if you make another charge to the credit card, the increase will be triggered. In these instances, you should consistently avoid using your credit card unless there is an extreme circumstance. Instead, use a debit card which can help you become more discerning in what you buy. In these instances, it is ideal to help pay down this credit card debt because the likelihood is at some point, you will inadvertently use your credit card through a subscription or use it purposely and trigger the higher rate. By paying down this debt, before this occurs, you can help reduce the impact of increase percentage rate.

As you can see, the common advice of trying to lower credit card debt may not be the best option for you. However, considering the above factors, you should have a strong indication of which way is the best to go.

Source by Fred Barnes

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