Where Do I Start?
You might be asking yourself that question when faced with a pile of debt that never seems to shrink. Although it might seem impossible to pay off your debt in full, managing it will drastically improve your credit score, and will likely help you sleep better at night.
A good starting point is a simple brainstorming session. Figure out where you are with your debt, and where you want to be. Although it seems simple, it’s important to come up with a strategy that works for you. If you don’t, you’ll likely wind up throwing money at the problem without thinking – which can actually lose you money in the long run.
If you want to eliminate the debt entirely, know that it won’t be easy and that you’ll likely have to make some sacrifices. If this is your goal, your starting point is simple: Take scissors to your cards and reduce your spending drastically. (But keep the accounts open! Open, unused credit looks great on a credit score.) Although it’s hard, that weight-off-your-shoulders feeling you’ll have when it’s all paid off is priceless.
A good goal is to pay off more than your minimum payment. Here’s an example from Real Simple magazine: If you have a $2,000 balance on a card with a 17% interest rate, it will take you more than 21 years to pay it off if you only make monthly minimum payments. Ouch.
The “B” Word
That’s right – budget. Grab a piece of paper and diagram your spending. Figure out what you owe, and put that at the top of the page. Make a column for what you need to pay for and another for what you can live without. Allocate the funds in that “I can live without” column to paying off your credit card debt. This will help you make more than the minimum payments each month and get one step closer to minimizing that debt.
Master Your Interest Rates
If you’re like me, you got a credit card when you weren’t exactly financially stable. Credit cards seemed like a magical way to be able to do fun things and pay for them later. I was so excited by this concept that I didn’t notice the high interest rate I’d be paying, or shop around for interest rates like I should have. In turn, I had no clue how difficult it would be to pay it all off in the end.
Take a close look at your cards’ interest rates. You should try to pay off the cards with the highest interest rates as soon as you can, because they’ll cost you more in the long run. If you have multiple cards, focus on the card with the highest rate and work from there. It might seem tempting to move your debt from a high-interest card to one with a lower interest rate, but be careful. Real Simple warns that this method can save you money, but it could also cause your rate to increase drastically if you don’t pay it off within the card’s low-interest-rate window.
No matter what, make sure you continue to make payments on the other cards. You don’t have to contribute as much as the higher interest card, but make more than the minimum payments if you can. One of the worst things you can do is avoid making payments altogether.
If you’re in some serious debt, you could try peer-to-peer lending to clear out the debt quickly. If the interest rate from your personal loan is lower than the one from your credit card company, then you’ll pay less in the long run.
Quantity over Quality
Another strategy for paying off credit card debt is to pay off as many balances as you feasibly can. Not only will you feel like you’re getting somewhere (which you are!), but you’ll also have fewer cards to deal with, which makes your job a lot simpler. Important note: Just because you get a card cleared doesn’t mean you should spend on it anytime soon. An important part of all debt-management strategies is monitoring your spending and staying on budget – even if those amazing boots you’ve been eyeing are finally on sale.
There’s an App for That
Thankfully, there are a lot of apps out there to help you focus on saving money to eventually eliminate your credit card debt. Apps like Debt Manager and Debt Buster help you visualize your debt and prioritize your payments. They’ll also help you understand what’s going on with your debt, how it’s growing, and some strategies to contain it – or eliminate it altogether. If you’re really stuck and can’t find a way out, there are debt counselors who can help you make sense of it all.
Do you have a strategy that helped you turn your mountain of debt into a molehill? Share it in the comments section below!
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