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7 Step Guide To Pay Off Credit Card Debt
If you owe money on credit card bills, student loans, and car loans, and you’re not alone.
Being in debt is a burden. Unfortunately, many people are in debt, carrying a balance on multiple credit cards, and loans.
If you find yourself in debt for whatever reason and you want to get out of debt, it’s important to have a plan.
Even if your debt seems overwhelming, you can reduce debt one step at a time.
Are you ready to get out of debt for good?
Getting out of debt is easier said than done. For example, it’s difficult to get out of debt in a reasonable amount of time if you just pay the monthly minimums against what you owe. You will have to pay more to get out of debt faster.
Here’s a 7-step guide to paying off your credit card debt as fast as possible once and for all.
P.S. This post about paying off credit card debt can apply to pay off student loans, auto loans, personal loans, etc.
1. Make a List of Your Credit Cards
Make a list of your credit card debt, not as a whole but per card balance.
It can be daunting to tackle your credit card debt if you focus on the total amount due.
If you have multiple credit cards, break up your credit card debt into smaller chunks. If you have one credit card with a very high balance, you can split the credit card debt into smaller amounts. This can make the credit card repayment process more manageable when you think about it in smaller amounts.
No matter which approach you choose, remember to always make at least the minimum payment on all your credit cards to avoid penalties and late fees.
2. Determine which credit card you should pay off first
Once you have written down your credit card balances, decide the best method to pay off the debt.
Which card should you pay off first?
That depends on who you ask. There are two different strategies that can be used to pay off credit card debt: Snowball and Avalanche methods.
The snowball method works by paying off the credit card with the smallest balance and working your way to other credit cards.
The avalanche method works by you paying off your highest interest rate debt first and going in that order.
The avalanche method is the best way to start paying off the high-interest rate first. Paying the credit card debt with the highest interest rate means you’re saving the most. The goal of paying the high-interest rate first is to reduce the principal to limit the interest that accrues.
Once you have paid off the credit card with the highest interest rate, move onto the credit card with the next highest interest rate.
Let’s look at the example below. With the Avalanche method, you focus on the debt with the highest interest rat, which in this case is Credit card #4.
Always make more than the minimum payment on the highest interest rate debt while you are still making minimum payments on the other debts.
Once you pay off Credit card #4, move on to Credit card #2, and so on until all credit cards are paid off.
|Creditor||Balance||Interest Rate||Minimum Payment|
|Credit card #1||$15,000||9.9%||$350|
|Credit card #2||$4,000||14.99%||$130|
|Credit card #3||$6,000||5.99%||$100|
|Credit card #4||$1000||18.99%||$25|
|Credit card #5||$11,000||11.99%||$200|
Always make more than the minimum payment.
3. Negotiate your credit card interest rate
To begin with, I hope you know your credit card interest rate. If you do not, check your statement for your rate.
Credit card interest rates are usually high, that’s how credit companies make lots of money. On average, credit card interest rates are at around 19.5%.
Lowering credit card interest rates can potentially save you hundreds if not thousands of dollars per year depending on how much credit card debt you carry.
Negotiate your interest rate today. What do you have to lose?
4. Get a 0% APR Balance Card
A 0% APR credit card gives you 0% interest on your credit card debt balance for a certain period of time.
It means that you can transfer your existing credit card debt balance to a new credit card.
Many 0% APR cards offer no interest on your credit card debt for 6-24 months, for example.
For example, if you have a grace period of 12 months, at the end of 12 months, you will owe interest at an interest rate based on your credit card application, FICO score, and other factors.
With 0% APR credit cards, you can get a reduction on credit card interest and pay off your credit card during the grace period.
5. Create a budget
Once you have successfully negotiated your interest rates or received a new 0% card, I recommend creating a budget and including the amounts in your budget.
Here are a few ways to budget:
Your budget will show you:
· How much you spend each month on living expenses such as mortgage/rent, electricity, insurance, phone, internet, groceries, etc.)
· How much leftover money you have after living expenses.
Your budget will show you how much money you have leftover each month to pay towards your debt after all of your other expenses.
6. Save money & lower monthly expenses
The best way to get out of debt faster is to increase the amount of money you pay towards your debt each month. You can achieve this in a number of ways:
- Sell stuff: sell the things that you have around the house that you don’t need or no longer use.
- Cut expenses: get in the habit of renegotiating expenses such as auto insurance, internet, cell phone service, etc. New deals are advertised quite often, make sure you are getting the best deal available. 30 Simple ways to save moneyGet a side hustle: there’s no limit to side hustles that you can do in your spare time. There are so many ways to make money including 1) Proofreading jobs 2) start a blog 3) Scrap metal sales 4) filling out surveys 5) Work from home jobs 6) Driving Jobs
Relate: How to make $500 Fast
Remember, every extra dollar that you can pay toward your debt each month reduces the amount of time it will take you to become debt-free!
This includes tax returns, stimulus checks, work bonuses, and cash gifts. Any time you receive extra money is a great time to put the money towards your debt so you can reach your goal faster.
7. Learn for the future
Once you’ve paid off your high-interest debts, it’s time to start focusing on the future.
Now you can work on future money goals such as:
- Build Emergency fund
- Contributing to a 401(k) and/or IRA
- Save up for a car to buy in cash
- Save for a vacation in cash
Related: How to build an emergency fund
Having debt can feel overwhelming and stressful, but the key is to take it one step at a time. It takes time to accumulate credit card, so don’t feel like it must be paid tomorrow. Don’t create unnecessary stress for yourself.
The pay off debt journey is a lesson not to continue to do the same things that led you into debt in the first place.
As long as you continue on the journey of paying off your debt, you will be debt-free one day.
Are you paying off debt? How’s it going so far?
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