Credit card debt is very easy to get into but can seem much harder to get out of. The good news is, it can be done. Follow these ten easy steps and start to take control today.
1: Make a budget – In order to get out of credit card debt you need to figure out where you went wrong and ensure it does not continue to happen. Write down a list of all your monthly incomings such as wages (after tax), interest or dividends from savings and so on. Then write a list of all your regular outgoings such as mortgage or rent payments, loans, utility, phone and internet bills, fuel & vehicle maintenance, insurance, healthcare, groceries and clothes. You also need to work out how much you are currently spending on other aspects of your life such as entertainment, eating out and clothes shopping. Add up your total incomings and take away your total outgoings. This will leave you with your current monthly cash flow. If your outgoings exceed your incomings you will have negative cash flow and therefore are pushing yourself further into debt each month. Look through your expenses and look for areas where you could cut back. Perhaps you are eating out to often or treating yourself to those nice shoes or clothes more than you need to. You need to have some rewards but make a budget for non-essentials and stick to it. You can then use the spare cash flow each month towards paying off your credit card debt.
2: Pay more than the minimum balance – credit cards have traditionally had a minimum payment each month equivalent to 3 – 4 percent of the credit card balance. Now they can be as low as 1.5 percent. At that rate rate can take years to pay a card off due to the interest charges. Pay as much as you can afford each month over the minimum. You will find your repayments exceed the interest charges and you debt starts to reduce,
3: Highest interest cards first – If you have more than one credit card then focus your efforts on paying off the card with the highest interest rate first. Rather than paying a few extra dollars off every card each month, pay the minimum balance on all cards other than the one with the highest interest. Pay all you can afford this card until you have paid the balance off in full. Once this is done you should move onto the card with the next highest rate of interest and repeat the process.
4: Credit card interest is calculated daily – You receive your credit card bill once per month but your interest is calculated daily. Make repayments as often as you can afford. For example, if you get paid each week and can afford to pay $ 100 off from each pay packet, pay $ 100 off each week rather than waiting until the bill is due. That way you could save several weeks worth of interest on the money you pay off. Over time this can make a big difference,
5: Consolidate your credit card debt into one place – When you have multiple credit cards it can be difficult to manage the debt and remember which cards you have paid off. Many credit cards have hefty penalties for late payment which will set you back from reducing the debt. Having all your credit card debt in one place makes it much simpler to manage and gives you a clear picture of your financial situation.
6: Balance transfers – one way to consolidate your credit card debt into one place is via a balance transfer to a new credit card. Many credit card companies offer introductory balance transfer offers such as 0% interest for 6 months. This is a very effective method; however you should try to ensure that you pay your debt off within this introductory period. You also need to consider what interest rate the debt will default back to after the introductory balance transfer period ends.
7: Low interest credit cards – Credit cards have traditionally been an expensive form of debt with interest rates around 18-19%. With increased competition a new breed of low interest cards have emerged. These cards have an ongoing interest rate around 10-13%, sometimes even lower. Low interest credit cards are useful if you carry an outstanding balance from month to month. They tend to have less frills such as rewards schemes but will save you more in reduced interest payments
8: Talk to your credit card company – If you are having real trouble paying off the debt then you should try calling your credit card company and explaining the situation. Many are very helpful and may arrange special payment terms to help you pay the debt off.
9: Use a debit card – If you are struggling to keep your spending under control then you could consider using a debit card for new purchases. A debit card has similar acceptance to credit card but is linked directly to your savings account. As a result you can only spend what you have. You can keep a credit card for existing debt while you pay that off and for major purchases.
10: Finally, do not stress – While credit card debt can seem very stressful it can be brought under control. Use the methods outlined above to get you started. There are also non-profit organizations which help with credit card debt management and financial advisors who can devise a detailed strategy for debt reduction to suit your needs.