As nearly 80% of Americans struggle with debt, you’re not alone in trying to balance your spending and your responsibilities. When you sign up for a card, no one teaches you how to pay off credit card debt. You have to go into the world with a card to get into trouble sitting in your pocket and no one willing to tell you not to use it.
Here are four steps to get out of debt if you find yourself stuck in it.
#1. Break Down Your Budget
The first thing that you need to look at when you’re trying to pay off your credit cards is to see how much you could be paying each month. Most people don’t have a solid understanding of what their basic expenses are. This is what causes so many people to live just at the edge of their means, no matter how much they make.
If you haven’t assessed your financial situation, drop everything and start figuring out your budget. You should have a list of everything you owe, each loan you have, or any payments that you make every week or every month. Include in this list your monthly payments.
Then separate the money you owe credit card companies in relation to their APR. That’s how much they’re charging you for the money that you’ve borrowed. Since they vary, you probably want to pay off the card with the highest interest rate, assuming all debts are equal.
However, if you have a credit card bill that’s within reach, worth just a few month’s payments, focus on eliminating that first. Pay those cards off so that, you don’t have to think about them anymore and can focus on the rest of your debts. The fewer credit card companies you have to pay off, the better off you’ll be.
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#2. Spend With Purpose
Beyond paying off debts, the rest of your spending should be purpose driven. While you need to always make sure you have money for your basic needs, you should make sure you’re able to have some flexibility beyond subsistence. You need to pay off your debts but also be able to enjoy your life.
After you’ve figured out your minimums, you should then pay off secured debts, related to something like your house or your car. If you fail to make payments on these things, you lose them, sometimes regardless of how much you’ve paid on them already.
If you’ve figured out those basics, then you should take a bite out of your credit card debt.
Try using a debt calculator tool so that you can see what your payoff rate looks like. If you see a number you don’t like in the box telling you how long it will take to pay it off, you might have to make some changes. Do what you can to avoid being underneath credit card debt for years.
For people with student loan debts, that comes next. You have to take student loan debt seriously because the federal government backs so many of those loans. If they get a mind to be repaid right away, they could reach into your tax return, your paycheck, or even into your assets.
Try to avoid using your credit cards while you’re trying to pay them off. Carry cash so that you can manage your spending and know how much is too much.
Some cards allow you to perform a balance transfer, so if you get a better card with a better interest rate, you can set your larger debt at that lower interest rate.
#3. Find New Avenues
When you’ve looked at your budget, you might have found places where you can afford to cut back. If you cut down on your cable bill, you might be able to get rid of your television. For casual players who cancel their membership at a country club to save money, maybe it’s time to sell your clubs.
Also look at all of your habitual spending. There are millions of people who line up every single morning for the same coffee from the same cafe. If they sell their own beans, you could be cutting your coffee spending down by 75% if you’re willing to make your own coffee in the morning.
If you need some extra cash right away, look into different side hustles. Whether you’re selling vintage lamps and old records on eBay or driving a car for Uber or Lyft, you could be making money whenever you want. Put that extra cash right into your account for paying off your credit card and you’ll see that debt melt away.
You could even get paid to travel the world.
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#4. Set a Strategy
The most popular payoff methods are the avalanche, snowball, and blizzard methods.
When you use avalanche, you pay off your balances with the highest interest rates. You can erase your debt quickly if you make minimum payments on everything except your card with high APR. By hammering that bill with as much as you can afford, you can pay it off fast.
The snowball method is the one where you start with your smallest debts and just try to get rid of them. If you’re always paying the minimum on all the other accounts, you won’t be penalized and you’ll take down debts one by one. The blizzard method is a combination of both methods where you first pay off the lowest balance and then pay off the one with the highest APR.
Learning How To Pay Off Credit Card Debt Takes Time
If you’ve never properly learned how to pay off credit card debt, you’ll find that the learning curve is steep. It could take years before you get the hang of paying off your debts efficiently and on time.