Strategies to Wipe Out Credit Card Debt
Credit cards can be helpful to build your credit if they are used properly, but they can also hurt your credit if you misuse them by racking up a substantial amount of debt. It’s important to get a hold on credit card debt before it gets out of control. Luckily, we have several helpful tips that can keep you ahead of credit card debt and find ways to manage current credit card debt.
Assess Your Finances
The first step towards getting out of credit card debt is to evaluate your current financial situation. It helps to create a list of everything you owe including all of your other monthly bills. Taking a look at each credit card’s balance will help you to determine how to approach reducing your debt. Next, you will want to compare your credit card debt and expenses with your income. If your debt-to-income (DTI) ratio is high, you will likely have trouble paying down your credit card debt quickly, but a little goes a long way. Determine how much of your income you will allocate to paying off your debt and stick to it.
Start a Budget
Once you’ve prioritized your debts, you can now establish a budget. This budget will help you track your spending and allow you to get a handle on how to start chipping away at your credit card debt. Using the right financial tools will help you start off strong and stay on track with your budget. Our Money Manager tool helps you to track and categorize your spending, set spending and savings goals, track and receive reminders for upcoming bills, and more. This tool can help to ensure that you stick with the amount you decide to dedicate to paying down your debt.
Finding a Payment Strategy
When you first open a credit card, your lender explains your interest rate. This is the percent you are expected to pay per period on the balance you have accrued on your credit card. You may only be required to pay that minimum percent back, but it’s helpful to make a larger payment. Financial institutions make money off of the interest that they charge per period, so the longer it takes for you to pay off the balance, the more money they will make. Think about cutting back in other areas of spending that aren’t essential in order to pay off more of your balance than normal. There are also a few payment strategies you can consider when trying to pay down your debt:
- The avalanche method involves paying off your credit card balances with the highest interest first. Once that is paid off, you will move on to the next card with the second highest amount of interest and so on.
- The snowball method involves paying off the card with the smallest balance first and working your way up from there. This method can help you to build the confidence and positive repayment habits you will need to conquer your debt.
Whichever strategy you choose, make sure you stay consistent to build a good routine.
Consolidate Your Debt
Many people open multiple credit cards from different institutions. This is a quick way to rack up debt, plus it’s hard to manage and keep up with multiple payments to different companies. Think about finding ways to make one big payment versus several different payments. Consider a balance transfer to help you simplify your debt reduction. Transferring your balances to one single card also means that you have one interest rate for your total balance, rather than having varying interest rates across multiple cards. Having one balance with one interest rate can save you a lot of money in interest payments. At Robins Financial, we offer great low rates on balance transfers with no balance transfer fee or annual fee.
Discuss Payment with Your Creditors
Sometimes uncontrollable events happen in life and it causes you to get behind on payments. That’s understandable. It’s important to communicate with your creditors and explain your situation. Sometimes, they are willing to negotiate your payment terms or offer hardship programs that may help you wipe out some of your credit card debt. The worst your creditor can say is no, so don’t be afraid to try. Other ways you can seek help are by looking into debt management plans or debt settlement. Through debt management plans, counselors will negotiate new terms with your creditors on your behalf in order to consolidate your credit card debt. If they are successful, you’ll then only have to pay the counseling agency a fixed rate each month instead of owning multiple creditors. Through debt settlement, you may be able to get the creditor to agree to accept less than the amount you actually owe. Communication is key, so don’t be afraid to reach out for help before your credit card debt gets too out of hand.
The bottom line is, if you don’t change the behavior that got you into credit card debt in the first place, you may end up slipping back into old habits in the future. It’s important to differentiate between your “wants” and your “needs.” Do you need gas and groceries? Of course. Do you need the newest item that’s hot on the market? Maybe not right now. Needs should always take precedence over your wants. Stick to your budget and keep a close track on your spending to avoid winding up in debt all over again.
At Robins Financial Credit Union, our mission is to enhance the financial well-being of our members and community. We honor this commitment by providing educational content to help you make the most of your finances. Read our other blog articles to help you gain the financial knowledge you need to succeed.