A lot of people struggle with credit card debt. In fact, Americans owe a collective $1.04 trillion in credit card debt according to the Federal Reserve. That’s an average of $6,354 per household in credit card debt. If you are in a similar situation, it’s time to get organized and start tackling your debt before it gets out of hand.
Of course, getting rid of debt is easier said than done. However, nothing is insurmountable if you’re determined, persistent, and self-disciplined. Here’s the best way to clear credit card debt.
Evaluate Your Financial Situation
Assessing your financial situation is the first step towards a debt-free journey. In all honesty, you can’t create an action plan if you don’t know where you stand.
Identify and create a list of all your debt and monthly expenses, both fixed and variable. It may include credit card debt, mortgage, student loan, utilities, groceries, insurance as well as the money you owe to a friend or family member. Make sure you indicate the interest you’re charged for each debt.
Next, list all your current sources of income. Then, compare the expenses and debt payments to your monthly income. If it’s less than your income, direct that extra cash to your credit card debt. But, if it’s more than what you earn, cut your monthly household expenses and unnecessary spending.
Once you’re done with the calculations, it’s time to come up with an effective plan to pay your credit card debt for good. Don’t fret; we did you a major solid by putting together two proven strategies to help you eliminate credit card debt.
Solution #1: The Snowball Method
This strategy involves paying off the card with the lowest balance first. This does not mean you neglect the card with the highest balance, but rather focus on paying more than the minimum payment on the card with the lowest balance. When you pay off that debt, you move to the next smallest balance on your list. There’s nothing quite like the feeling of financial accomplishment. It can help you stay focused when paying down the largest balances.
Solution #2: The Avalanche Method
The avalanche approach focuses on paying off the card with the highest interest rate. This means, paying the minimum balance on each card but, dedicating as much money as you can on the card with the highest interest rate. Using this method is probably the fastest way to pay off credit card debt.
While the avalanche method is good on paper, research shows the snowball method is the most effective strategy. But in the end, it all comes down to the approach that works best for you.
Negotiate a Lower Interest Rate
It may seem like a long shot, but, you can get a lower interest rate by negotiating with your credit card company or bank. First, arm yourself with details of your credit card such as due date, current balance, monthly payments, grace period, credit report, etc. Having numbers by your side can put you in a great position to negotiate with your issuer.
Also before contacting your issuer, make improvements on your credit reports if need be. A good credit score indicates you pay your debts responsibly. This can improve your odds of getting a better rate. You should as well research other credit card issuers that offer a lower interest rate. Then use the information as leverage to get your rate reduced.
If your credit card company refuses to bend despite your best efforts, consider balance transfers. While it usually requires a fee to transfer your balance, paying zero interest for a year or more is much better than getting stuck with high-interest rates.
Keep in mind this method can be risky if you don’t have a plan. A balance transfer is usually a good idea if you pay off the credit card debt within the introductory period (usually 12 to 18 months). Otherwise, you may end up in even more debt.
It will be in your best interest to shop around for the best deal. Don’t overlook small banks or issuers you might not have heard as much about.
Make an Expenditure Reduction Plan
Slashing your spending can be a great start to clearing credit card debt. You can’t get out of debt if you don’t change your spending habits.
Go over your budget and identify the areas you spend too much money on. Take a close look at your average food spending, travel expenses, entertainment, and social events. These are the main areas in which you’re likely to spend too much on.
Once you have an idea of where a huge chunk of your money is going, it would be easier to create an expenditure reduction plan. You can start by cooking more at home and eating less outside or selling your car and using public transportation. The goal here is to increase the surplus and use that money to pay off credit card debt.
Our app can help keep your spending in check and get your personal finance under control. You can download it here.
Pay More Than the Minimum Balance
If you want to shrink your debt fast, pay more than the minimum balance. The more you put towards your credit card debt, the quicker you’ll be free of your obligations.
If you are on a shoestring budget, aim to pay two minimum payments each month.
Earmark Extra Money for Debt
Allocate any extra money towards your debt payoff plan. While it might be tempting to use your work bonuses or side hustle earnings on vacation, try to see the bigger picture if you want to get out of debt for good. Make a committed decision to direct all the extra income you make to your debt.
Clearing credit card debt doesn’t happen overnight. And to be honest, the path to getting and staying debt-free is going to be a long trek. But with discipline and a solid financial plan, you can kick credit card debt to the curb.
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