Tips for Paying Off Credit Card Debt
Credit card debt is very easy to get into and build up, but very tough to pay down. This is because most credit cards charge high-interest rates. If you only make the minimum payment on your debt, you could soon discover that it will take you years to pay off your debt. And it will cost you quite a lot of interest in the process.
When you’re dealing with credit cards, it’s important that you pay off your debts as quickly as possible. Not only will this save you a lot of money, but it will also help your overall financial situation, and maybe even improve your credit score. Plus, you won’t have to deal with the stress and hassle of dealing with creditors and juggling bills.
Paying off credit card debt might seem impossible, but it doesn’t have to be. Here are some tips for paying off credit card debt.
Make More Than the Minimum Payment
As mentioned, if you only make the minimum payment on a credit card, it will take you a very long time to pay down the debt and you’ll pay a lot in interest. The credit card company may be happy (since you’re not missing any payments and you’re spending a lot on interest) but you’re not doing yourself any favours. If you only make the minimum payment, you’re basically spending most of your money on paying the interest on your debt and very little on the principal.
Even if you can only afford to pay a bit more than the minimum, that’s still a better choice. Take a look at your budget and see if there is anywhere that you can make cuts so that you can increase your monthly payments. You may have to make some changes to your lifestyle or delay some other spending to pay down your debt more quickly, but doing so will help you a great deal in the long run.
However, if you have significant debt on more than one credit card, then you may have to employ a different strategy.
Figure Out Your Interest Rates
Take a look at all of your credit cards and figure out how much you are paying in interest on each card. Understanding exactly how much your debt is costing is the key to paying it off.
Once you know the interest rate on each of your cards, talk to each credit card company. Explain your financial situation and ask them if there is anything they can do to help. They might be willing to reduce your interest rate or waive some fees so that it’s easier for you to pay off your debt. After all, they’d rather have you pay back what you owe than have you default on the debt.
Pay the Most Expensive Card First
If your credit cards all have different interest rates, a good tip is to focus on paying down the one that is costing you the most each month. Make the minimum payments on all of the other cards so that you don’t get into trouble with your creditors, and pay as much as you can on the debt that’s the most costly. Yes, in general, paying only the minimum payment on a credit card isn’t a good idea, but if you’re doing so in order to reduce the overall amount that you’re paying in interest on all of your cards, it could be a wise choice to make.
If all of your debts have similar interest rates, or if paying off various different cards each month is too overwhelming or demoralizing for you, then you’ll want to use what is called the “snowball” method. This involves focusing your efforts on paying off the card with the smallest balance and making the minimum payments on your other cards. The goal here is to eliminate the smallest debt quickly, giving you motivation to keep going.
Stop Using Credit
Of course, when you’re paying down credit card debt, you’ll need to be careful that you’re not adding on new debt at the same time. If you’re paying of $500 a month on your debt, for instance, but you’re charging another $500 in new spending on your credit cards, you’re just treading water. Even if you pay off the more expensive cards and add new debt onto the less expensive card, you’re still not improving your situation very much.
You should try to find a way to afford your monthly expenses without using your credit cards. This will require strict budgeting and likely cutting some spending. Take a look at your budget and see where you can make cuts. You’ll have to live on cash for a while so that you can pay down your credit card debt. It might be tough, but it will be worth it.