September 21, 2018. By Courtney Summa:
It’s always a good feeling when you are in a strong financial position, however despite best efforts it is possible to end up in a bind. With the access to your credit card sometimes feeling like a “get out of jail free” card during desperate times, it can be very easy to overspend and accumulate credit card debt. If you find yourself in this situation, here are some basic steps to help you clear your credit card debt faster and to feel more secure in your financial position:
Assess your current situation
Tackling your credit card debt can be a daunting task, but you are going to conquer your debt you have to face the real numbers determine exactly how much you owe. The first step in organizing your debt is to write down all outstanding balances complete with the interest rates per card. Sometimes looking at the combined balances is extremely intimidating. Instead of looking at it all at once, try to break the debt into smaller, more manageable pieces or categories such as retail cards v. major credit cards. The math on how much is owed won’t change, but looking at the consolidated, organized pieces may seem more approachable.
Design your repayment strategy
Ideally you should pay an amount above the minimum on each payment, however this is not always feasible and there are many ways to approach repayment. One is to target one debt at a time. In this strategy, you would pay the minimums on the cards with the lowest interest rates while paying an amount larger than the minimum on either the card with the highest interest rate or the one with the smallest balance. This is done in effort to eliminate one balance at a time, then repeating the process to eventually clear all balances. Your financial planner will help you calculate which strategy is best for your debt and income level.
You may wish to incorporate reprioritizing your budget into your strategy. This entails categorizing your monthly budget and spending habits into categories like groceries, utilities, car payments, entertainment, etc. From there you can see the areas where you could trim back and reallocate to debt payments and building an emergency fund. This process will help you identify which type of spending led to the lack of access to cash funds causing you to resort to credit card use in the first place.
Lastly, you could also consider consolidating your debt to streamline payments and decrease interest rates. You can consolidate to the card with the lowest interest rate (many offer even lower promotional rates for transfers) or you can take out a personal loan at your bank or credit union. This can result in paying your debt down faster without increasing your payments simply from the lower interest rate. Word to the wise: be mindful and control your spending; it may be tempting to use the cards again once you see a zero balance on your updated statement post-consolidation.
Store away your credit cards
Keep all but an emergency card out of your wallet and store the rest where they are not too easily accessible. Instead of keeping several cards in your wallet, plan instead to pay cash whenever you can. Psychology Today sites that although it may be more convenient to pay with plastic, paying with cash may lead to decreased overall spending and better appreciation for purchased items.
Set goals, stay focused, and track your progress
Write down your goals as to why you want to eliminate your credit card debt. Are you saving for a down payment on a house? Do you have a dream vacation you always wanted to go on? Or do you want to eliminate the stress of unorganized bills each month? Writing down your goals and keeping them close when you are thinking of overspending will allow you to be reminded as to why you shouldn’t overspend. Every four to six weeks check your progress by updating your outstanding balances. It’s always a good idea to check in on your finances but seeing the balance of your debt slowly decrease is a great incentive to keep going!
Carrying credit card debt can be nerve racking and a major obstacle to achieving savings goals. Taking a step back, being honest with yourself about what needs to be done and committing to the right actions to follow through will help you reach your goals. If you are balancing credit card debt with other obstacles such as student loans, elder care, or a mortgage and are wondering what steps to take to get on the right track, right now, click here to learn how our QuickStart Consult can help.