How to reduce credit card debt in 7 simple steps
Monday, 19 October 2015
Credit card debt can feel like a rain cloud that follows you everywhere.
Even when you're having a good day, just one thing can trigger a reminder of your looming debt, and then your mood switches from sunny to gloomy. If you're struggling to pay off credit card debt, you're not alone.
But have faith that there are plenty of ways to reduce your debt—faster than you think. Here are a few strategies that can help you pay down that debt.
1. Assess your credit card damage
Take all the credit cards you have and set them on a table. Then create a spreadsheet that details the name of the account, the interest rate, and your total balance due for each card. This exercise alone can be enlightening because we often don't know the true depths of our debt.
2. Determine which credit card to pay off first
From your spreadsheet, identify the card with the highest interest rate and the highest balance due, and make it your mission to pay off that card first. Another option is to consolidate your debt into a low-interest card. But before you do that, do your homework.
First, research all the fees associated with the balance transfer. Second, only consolidate an amount that you know you will be able to pay off within the low-interest window (note: many of these cards will offer a lower interest for just a short period of time). Third, be careful not to consolidate too many cards. This can be a problem if the new card does not have a high enough limit to accommodate the entire balance. Call the credit card company to inquire about the card's limit before opening a new account.
3. Pay more than the minimum payment on your credit card debt
Credit card minimums can be deceiving. You may feel as though you're making progress, but in reality, you're in for a very long repayment timeline. Try paying more than your minimum each month—even an extra $50 per month will make a dent over the long run.
4. Make extra money on the side
Consider working a second job a few hours a week in order to help pay down your debt. If you don't have the flexibility to accommodate another job, think about selling things that have just been sitting around your home.
Business owner Jenny Newcomer wrote on finance blog Man vs. Debt about how she paid off her debt in just nine months by selling things on eBay. Looking around her house, she realized how much unnecessary stuff she had: books, iPods, old laptops, and sporting equipment. After selling a few items per week on eBay and Craigslist, she had paid off $15,000 of her debt.
5. Suspend your credit cards
Start spending with cash and leave your credit cards at home. Put them in a safe place like a deposit box where you won't use them, or consider cutting them in half. Once you've suspended your cards, log on to any online retailers where your information is saved, and delete all your information. This way, you won't give into the temptations of one-click ordering, and you'll have better control of your spending.
6. Create a monthly budget
Now that you've consolidated your debt, found ways to raise cash on the side, and stopped using your cards, sit down and iron out a budget. Figure out how much money you'll need to put aside in order to pay down your debt in 12 months—and don't forget to factor in the interest.
7. Get creative with your savings plan
What unnecessary expenses can you get rid of? Do you really need a Netflix subscription if you already have Amazon Prime? What about your weekly trip to the nail salon and the daily $6 lattes? Be very honest with yourself about where you're spending money, and make decisions on what you can cut.
You can also take inspiration from Krystal Yee, founder of the personal finance blog Give Me Back My Five Bucks. When she was faced with $20,000 in student loans and credit card debt, she got creative by selling her car and downgrading to a scooter, buying generic instead of name brand, cutting coupons, and even using washcloths instead of cotton pads to remove her makeup.
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