A New Credit Card Debt Tactic: Repayment By Purchase

You already know that it’s never ideal to carry a balance on your credit card, but only charging items that you know you’ll be able to pay off in full isn’t always as easy as it sounds. Things happen, and when they do, a credit card is often used as a payment crutch so that savings and checking accounts don’t dwindle.

Others may have periods where credit card spending gets out of control. Regardless of the situation, it’s imperative to pay off your credit card as fast as you can to avoid paying high interest rates on balances that carry over. Paying off a credit card also helps keep your credit utilization ratio in check, which bodes well for your credit score.

There are a lot of different tips and tactics for consumers who need to get their credit card balance under control, and a new – arguably more effective – strategy has just been confirmed thanks to researchers at Ohio State University, Harvard, the University of Pittsburgh and Yale. The new trick: target specific purchases, and not the total credit card balance.

Targeting Specific Purchases
According to the study carried out by the respective aforementioned universities, targeting specific purchases, rather than making minimum payments or attacking the total balance on a month-to-month basis, was proven more effective for getting out of debt faster. There are a few reasons for adopting this repayment by purchase approach. For instance:

  • A more careful analysis of your credit card purchases allows consumers to better assess what they’ve bought and what they can and cannot comfortably pay for out of their regular income. This can lead to more responsible spending decisions in the long run if consumers realize they’re spending more than they’re earning.
  • Obviously, the bigger purchases that carry over between statements are the ones that are going to accrue the most interest. Taking the steps to pay off these big ticket items will save you money in the long term.

The bad news with this repayment by purchase strategy is that a lot of the credit card companies aren’t offering the tools to do this. It’s hard to blame them, as interest on carryover balances is how they make their money. Why make it easier for people to get out of debt? The good news, however, is that it’s not difficult to do yourself. Just make sure that your credit card provider offers online banking. This way, you can keep up with your purchases in real time, assess them faster, and make payments on any purchases that you’ve made. A DIY approach is feasible, so long as you have the patience and discipline to commit to it.

Tackling Credit Card Debt
Credit card debt is no laughing matter. The average household with credit card debt owes nearly $17,000 and pays nearly $1,300 in interest each year. More than 40 percent of Americans with credit card debt have been carrying a balance for two or more years.

While the repayment by purchase strategy has potential, it’s worth pointing out several other strategies to help get your credit card balance back under control:

  • Pay off higher interest cards first: If you have multiple cards carrying balances, check each of their interest rates. Be sure to pay off the one(s) with the higher interest rates first, as you’ll save more over time by doing so.
  • Consider debt consolidation: Transferring debt or taking out a personal loan to settle credit debt can make sense in terms of keeping all of your credit card debt in one place and eliminating multiple interest rates. Instead of paying multiple cards each month, this tactic allows you to just pay toward one balance, whether it’s repaying a loan or paying off a consolidated sum.
  • Restructure your spending: It’s easy to say “only charge what you know you can pay off right away.” But talk is cheap, and this isn’t always reality. That said, a careful look at your income versus your expenditures may be in order. By assessing what you’re spending money on, you can better discover ways to cut back or determine how your money may be spent more wisely.


Ethan Warrick
Wealth Authority

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