Having a line of credit in your back pocket comes in handy when you’re stuck paying unexpected bills without savings. It quickly boosts your budget with extra cash, so you don’t have to think twice about seeing a doctor or towing your car when money is tight.
Ideally, you’ll have the cash you need to repay these bills by your next payday, but life isn’t always perfect. Sometimes, you need to call a plumber about a leak, then replace your kid’s broken reading glasses in the same week you planned to pay off your bills.
If you fall short of what you need, you may end up charging more emergency expenses on a personal line of credit before you can make a payment. Now your statement is a lot longer, and your balance a lot bigger. But you can still wipe out this debt and clear your balance as a result. It all boils down to having a clear strategy.
Use a Budget
A budget makes it easier to keep track of your money so that you’re less likely to overspend. The trick is to know where each dollar will go before you spend it; this way, you can tell in advance if you’re meeting financial benchmarks while covering the necessities.
Creating a budget is simple. You can do this the old-fashioned way or download one of these free financial apps for a more modern approach. Your method doesn’t matter as long as you prioritize your bills and debt over fun spending.
Reduce Spending to Pay More Than the Minimum
Making the minimum payment is an excellent way to keep this account in good standing and avoid late fines.
However, it isn’t an effective strategy for paying off debt. It takes longer to pay off what you owe, during which time you’ll most likely have to pay interest on any balance you carry over into another billing statement.
As you can see from this calculator, you end up paying more for your purchases this way.
If you’re making just the minimum, revisit your budget to see what you can do to boost your payments. Cutting unnecessary spending frees up cash you can pour into your line of credit.
Here are some popular ways to cut your spending:
- Use a meal plan to capitalize on sales and use up food before it goes bad.
- Switch from paying for movie and TV show rentals to streaming them from your public library for free.
- Cancel cable and keep streaming services to a minimum.
- Switch to cheaper phone and Internet plans or bundle your family’s contracts.
Don’t Tap into Special Savings
When debt gets overwhelming, you may be tempted to borrow from your 401(k) or your child’s 529 to get the money you need. While these savings offer a fast solution to your immediate problems, they create a whole new set of problems you have to contend with later.
For one thing, you may get hit by taxes and fees. For another, it drains money from important goals, leaving you less prepared for retirement or tuition.
Let’s cut to the chase — you can’t make a line of credit bill disappear with a magic spell. But you can pay it off with a practical plan in place. Stick with these tips you learned here today, and you’ll make a dent in your debt, slowly but surely.