Understanding Credit Card Usage and Debt Management
Credit card usage, including bank, departmental, and cashback cards, is on the rise. According to the latest National Inclusion Financial Survey (ENIF), 38.3% of individuals aged 18 to 70 possess at least one credit card. The Comisión Nacional Bancaria y de Valores (CNBV) reports approximately 40 million credit cards in circulation. Of these, 19.6 million consumers have departmental or cashback cards, while 13.6 million hold bank-issued cards. Additionally, other financial institutions offering technology-based services, like Nu, have around 7 million customers in this segment.
The Snowball Method for Debt Repayment
The snowball method is an effective strategy to settle your debts swiftly and efficiently, avoiding interest charges and enhancing your financial history.
- Identify the smallest debt: This will be your primary target for repayment.
- Pay minimum amounts: For all debts except your target debt, make the minimum monthly payments.
- Focus on your target debt: Allocate extra funds and aim to pay the highest amount possible. If necessary, minimize your expenses or seek alternative income sources that don’t involve new credit.
- Repeat the process: Continue this cycle until you’ve paid off all debts.
For instance, if you have multiple debts and the smallest is 6,000 pesos with a minimum payment of 500 pesos. By adding an extra 500 pesos each month, you’ll eliminate this debt in six months. In the seventh month, you’ll have one less credit to pay, allowing you to allocate that amount towards the next smallest debt.
Negotiating with Creditors
If the final debt proves challenging to pay, consider approaching your creditor to negotiate. Creditors usually prefer receiving partial payments over no payment at all, and may even offer a grace period or extended repayment term.
Key Questions and Answers
- What is the snowball method? The snowball method is a debt repayment strategy that prioritizes paying off your smallest debts first while making minimum payments on others. Once a debt is paid, you roll that payment amount into the next smallest debt.
- Why is credit card usage increasing? Credit card usage is rising due to the convenience and rewards offered by bank, departmental, and cashback cards. The National Inclusion Financial Survey (ENIF) reports that 38.3% of individuals aged 18 to 70 possess at least one credit card.
- How does the snowball method help with debt repayment? By focusing on smaller debts first, the snowball method provides quick wins that motivate continued debt repayment. This strategy also helps improve your financial history by reducing the number of debts and interest charges.
- What should I do if I struggle to pay off the last debt? If you find it difficult to pay off your final debt, reach out to your creditor to negotiate a more manageable repayment plan or grace period.
