Credit card debt can be very overwhelming. It adds up quickly, and the high interest rate makes it difficult to pay off. Here’s what to do.
There are three steps to eliminating your debt:
- identifying and consolidating your debts
- managing your debts
- and reducing your debt
In order to most effectively eliminate your debt, you must take all three steps.
Identifying and Consolidating Your Debts
Make a list with the following for each of your credit cards and other debts: the debtor, amount you owe, and the interest rate. The purpose of this list is to identify which credit cards need to be eliminated first.
You will want to start eliminating the higher interest rate credit card debt first because it is costing you the most every month. Some credit cards can have rates as high as 21% or more - if you are carrying debts of such a high rate you should eliminate that first.
If you owe a large amount of money at a high interest rate you will want to consider transferring that debt to a lower interest rate credit card. As another option, you can consider getting a debt consolidation loan from a bank.
If you are able to transfer some of your debts to a 0% interest credit card you should transfer your highest interest rate debts to a 0% card. This will let you manage that credit card debt while paying a minimum amount and then reduce your other credit card debts while carrying the first at zero interest.
You should try to consolidate your debts at the lowest possible interest rate. If your average credit card interest rate is 15% or higher you should try to consolidate to a single digit rate if you can.
Debt Management
Debt management is an art of maximizing the effectiveness of each of your dollars to pay off the most principal and the least interest. If you are able to keep a portion of your debt on a 0% card you could save thousands of dollars while managing your debt and focusing your energies on paying off a higher-interest card.
One important thing to remember is that if you are trying to manage your current debt you must do your best to not add any more to your debts. You’ll need to analyze your cash flow and not spend more than you are earning - you need to save every extra cent to get rid of this high interest debt!
Take advantage of 0% balance transfer opportunities. If you make the same payment each month to a card with 0% interest, you’ll pay off much more of the principal.
Debt Reduction
Make credit card payments each month. Even if you just pay the minimum, you have to make monthly payments on time. It will affect your credit score for the rest of your life.
If you are tight on cash, I recommend paying the absolute minimum to all cards but then pay the maximum you can afford on the card with the highest interest rate. Put your maximum effort toward paying off your highest interest rate credit card, and make it your goal to pay it off and close the account.
Take advantage of low interest rate cards whenever you can. If you can transfer some of your balance to a 0% card, you can pay a lower monthly payment on that balance. This will allow you to pay even more cash toward your highest interest rate credit card, which will make it easier for you to reduce your debt.
Cut back on any expense you can in order to save every penny to cut back your debt. Cut back on morning coffee, cut back on McDonalds breakfast, and save everything you can. Getting out of debt is a continuous process and you have to change the way you think about money.
