Tips for Getting Rid of Credit Card Debt
Credit card debt can be very difficult to pay down. This is because most credit cards charge a lot of interest. If you only pay the minimum payment, for example, not only will you end up spending a lot of money on interest, but it will also take you many, many years to pay off your debt, depending on how much you owe.
However, getting out from under credit card debt is possible. But you need to have a plan and stick to it. Here are some tips for paying off credit card debt.
Figure Out How Much You Can Pay
The first step is to figure out how much you can afford to pay each month. You will likely need to make some cuts somewhere to maximize the amount you have available to spend on paying down credit card debt. If you don’t already have a budget, this is a good time to set one. Write down all of your expenses and see if there are any places where you can make cuts. Every little bit counts.
Start by tracking your spending. Then analyze how much you spend each month and where your money is going. Are there any areas where you can make cuts? Most people find that they can cut some expenses like buying coffee out, buying lunch, and making impulse purchases without thinking them through. The potential cuts will be different for every person, so take a detailed look at your budget and see where you can reduce costs.
Pay More Than the Minimum
As mentioned, paying only the minimum payment on a credit card is costly. If you can manage it, always try to pay more than the minimum balance, even if you can only afford a few dollars more. Even a couple dollars extra now will result in significant savings in the long-term due to the fact that interest continues to accumulate on credit card debt every month. The less debt you have, the less interest you pay.
Stop Using Your Credit Cards
If you’re hoping to pay off your credit card debt, you’ll need to stop using your credit cards. Otherwise, you’ll keep accumulating debt every month while you’re trying to pay them down. If you’re not using credit cards, you’ll need to come up with a budget that allows you to live off cash. This means you’ll need to have a plan for paying off all of your bills while only relying on the money you have at the moment. It’s certainly possible, but it requires a lot of planning. Plus, when you’re living off of cash, you become more aware of your spending, and this can make it easier to stick to a budget and even reduce your expenses.
Figuring Out Which Credit Cards to Pay Off First
If you owe money on more than one credit card, you’ll need to spend some time prioritizing your debts. This means you’ll have to figure out which debts to focus on and which ones you should try to pay off first. There are several different schools of thought on this.
One is to pay off the card with the highest interest rate first. Rank you credit cards by interest rate. If two cards have the same rate, prioritize the card with a largest balance. Then pay only the minimum on all other cards except for the one with the highest interest rate. Paying the minimum balance is generally not a good idea, but if you have several credit cards to pay off, it might be necessary. By focusing your efforts on the card with the highest interest rate, you’ll save money in interest charges in the long run.
Another possible strategy is to pay down the card that has the lowest balance first. Rank all of your credit card balances in order from smallest to largest. If two cards have an equal balance, prioritize the one with the higher interest rate. Then focus your efforts on paying off the smallest balance first. Pay only the minimum on the other cards. Once you’ve paid off the smallest balance, focus on the next-smallest, etc. Don’t use a card once its balance has been paid off. Using this strategy works because it lets you see that your efforts are paying off, which can motivate you to keep going.