Having debt can be super stressful. If you’re not careful, your unpaid balances can easily add up. And before you know it, you will be swimming in murky financial waters, with no clear path to the shoreline. But there is hope. Your debt can be managed.
The reality is that you will need to make a commitment to tackle your debt. You should also not shame yourself for your current financial condition, as it is not permanent. There are certain strategies that you can use to effectively tackle your debt and move towards a healthier relationship with credit. All it will require is a bit of determination, and patience to move forward.
Where to Start
Now that you’ve committed to yourself to get out of credit card debt, you need to ask yourself a couple of questions.
First, you should know the total amount you owe and the amount you intend to pay. Sit down and have a Best Interest Basic (BIB) financial assessment. You can use Excel or budget software to track your current monies owed and savings. After the analysis, you can implement the debt-management plan that works best for you.
1.] Analyze Your Financial Position
You should analyze your finances and list out all your debts including your credit card debt. Review the balance and the overall percentage rate or APR. Try to tackle the debt with the highest rate to save yourself some interest charges. Always make sure you are at least paying the minimum payments required on every outstanding debt. Failure to meet even your minimum payments can result in a significant drop in your credit score. Some creditors may even reduce your overall credit limit if you are unable to make payments. Next, compare your income against your expenses. Include all your income generating sources into this and see if you are well equipped with finances to pay the debt.
2.] Ninja Chop Some Expenses
In order to cut some costs, you need to track where your money has been and where it is going. Tracking your spending will allow you take notice of some of your spending blind spots. You will be able to highlight your excess spending on items and services. Ask yourself what are your prioritized expenses and how many of them can be cut off. By cutting out these unnecessary purchases, you could possibly save yourself quite a bit of money. For example, having breakfast at home instead of spending on a drink and bagel every morning could actually save you more than a grand per year. You should take up every opportunity to free up some money.
3.] Hide Away Your Credit Card
You will be running water over all the savings you are trying to do by using your credit card simultaneously. Take it out of your wallet, freeze it in a block of ice, hide it, literally whatever you can do to stop yourself from using it. It is frustrating and it takes patience, but it will be worth it by the end. Pay for things by cash or debit card to prevent yourself from piling up more debt on the stack. Out of sight, out of mind. Right?
4.] Make a Budget
After prioritizing your expenses, you need to plan your monthly spending. This will ensure that you are living within your means so that you can shrink your credit card debt fast. Make yourself a budget spreadsheet or use some online tools to track your plan. By doing so, you will be staying within your budget and maximizing the possibility of paying off your debt sooner.
5.] Try out the Avalanche Method for High Debt
This is one of the popular methods to lessen your debt payments. It aims to tackle your debt in an efficient way. You first start by paying off the cards that have the high-interest rates. You pay all your other credit cards off with the minimum payments except for the one with the highest interest rate. Finally, you put money towards the credit card with the highest APR, and make the minimum payment plus any extra amount that you can afford.
Do this every month until you have your paid off all you debt. When you pay the highest interest rates, you will be saving hundreds of dollars on the interest charges. Use that money to pay the debt with the second-highest interest rate. And then you will be saving money and paying off your credit card debt quickly.
6.] Use the Snowball Method for Smaller Balances
This method works up by paying off the smallest credit card balances first. Use any extra savings or money you have to pay off the smallest credit card debt. After paying that, do not start saving the money you used to pay from the next month. Instead, use that money to pay off the next smallest credit card balance. With this method, you free up money by paying the smallest balances owed. Then you put that extra money towards the next debt.
This creates a snowball effect. This keeps you in a consistent habit of moving on to other debts almost automatically. This allows you to pay off your debts quicker, because you are preventing yourself from having access to your money for spending. In addition, by snowballing monthly payments, you will become more motivated to pay off your debts. The method also inculcates healthy repaying habits so that you become comfortable managing debt over time.
The Takeaway
Remember that you should always pay off more than the minimum balance every month (ideally the entire balance) if possible. However, if you have substantial debt, these methods can help give you small steps to get started in the right direction. Whatever plan you chose, you will want to make sure that you stick with it.
After you have successfully paid off your debt, you will want to maintain your good habits. Some of the best ways to stay out of debt includes living within your means, maintaining your BIBs, and understanding that credit does not control you. You have control over your finances. And you have to get to the point that you believe that for yourself. Paying off credit card debt does require a lot of determination, courage, and patience. But in the long run, the satisfaction is unparalleled.
How are you currently tackling your credit card debt? What did you find to be the most successful? What would you do differently in the future? We want to hear from you. Share in the comments section below.