The average balance on a credit card is now almost $6,200, and the typical American holds four credit cards, according to the credit bureau Experian. But even if you’re feeling mired in debt, you can start taking steps immediately to extricate yourself from monthly interest payments and credit difficulties. With these ten tips on the next page, you can pay off your credit card debt faster and achieve the freedom you’re craving.
1. Get Organised
Gather all the information for every credit card that currently has a credit balance. Note the interest rate, due dates, balance and minimum payment for each card. With all this information it is much simpler to make a plan and move on.
2. Identify the Card with the Highest Interest Rate
Many people feel overwhelmed by the goal of paying off their credit card debt, especially if they have balances on multiple cards with them. Simplify the situation by identifying the card with the highest interest rate. This will be your starting point. By paying off this balance first, you save money on interest, which can then be used to pay off other cards.
3. Pay the Minimum Balance on All of Your Cards
Instead of trying to add extra payments to all your cards at once, you pay the minimum payments on all your cards, except for the card with the highest interest rate, which you have just identified. By keeping track of them all, you avoid late fees and keep your reimbursement costs low.
4. Pay as Much as You Can on the Highest Interest Card
Let’s say you have three credit cards with balances. On the two cards with the lowest interest rate, you pay the minimum amount each month. But for the card with the highest interest rate you have to pay as much as possible until it is paid in full. If you have paid an additional $150 each month, you can apply that $150 (plus the amount you paid for the minimum payment) to the card with the next higher interest rate. The amount you apply to the debt snowballs on each card you pay.
5. Analyse Your Spending
If you haven’t tracked your spending in the past, start keeping records so you can see how you spend your money. After you’ve recorded each purchase for a month, analyse the results. If you’re like most people, you’ll come across some surprises. When you see your spending laid out in black and white, it’s easy to make intentional decisions about your cash flow. If you’re spending more on dining than you thought, you could decide to forego eating out until you’ve paid off your credit cards.
6. Create a Monthly Budget
The word “budget” sounds unpleasant to many, but working from a budget can be liberating. When you know exactly how much you can spend and still stay in the black, you’ll experience less stress and more control over your financial life. How much will you spend on food this month? How much on transportation? When you’re trying to pay off your credit cards, you can make adjustments to budget line items to free up more money for debt repayments.
7. Stop Using Your Credit Cards
Of course, if you keep adding to the balances on your credit cards, you’ll always struggle with debt. So stop using your credit cards for making purchases that you can’t repay immediately. If the temptation is too great, don’t carry your cards with you, and if necessary, destroy them.
8. Consolidate Your Credit Card Debt
Like things simple? Consolidating your debt onto one card or acquiring a debt consolidation loan might be the strategy for you. Instead of juggling four or five bills each month, you’ll only have one to manage. Be aware that debt consolidation may come with extra fees. On the other hand, some credit cards offer an introductory 0% APR period when you transfer your balances to their card.
9. Consider Drastic Measures
If you’re desperate to get rid of credit card debt, you might consider taking drastic steps. For instance, you could sell an asset, such as a second car or items around the house that you’re no longer using. Apply the proceeds to your debt and get rid of a large chunk in one go. You could also consider using some of your savings for paying off debt but keep enough in savings to serve as a rainy day fund.
10. Talk with Your Financial Adviser
If you’re concerned about your credit card debt, that’s a great sign! You’re thinking about your overall financial well-being and taking positive steps for your future. Take your momentum one step farther by setting up a consultation with a wealth adviser. You can discuss your plan for eliminating credit card debt as part of a holistic strategy to improve your overall financial life.