Tired of having constant debts from your credit cards? In this How-To guide, we’re showing you how to get out of credit card debt in 7 steps.
For most people getting into credit card debt is the easy part. Over an extended period, excessive spending will choke your cash flow and create a cycle of debt that is very hard to break.
Credit card debt in the United States amounted to $770 billion in the first quarter of 2021[1].
Let’s break it now.
If you are one of the many who are drowning in an ocean of credit card debt – don’t lose hope.
It is possible to get out of the deep end and find a stable financial shoreline.
Get Rid of Credit Card Debt
Financer.com has put together 7 actionable steps to help you get out of credit card debt once and for all.
Steps
Change Your Credit Card Spending Habits
People often put their heads in the sand when facing the reality of the debt they have got themselves into. Don’t be them. Instead, pour yourself a glass of wine and find a highlighter.
Face your credit card debt head-on by going through every credit card statement, and your checking and savings account for any overspending. Really let it sink in.
Your goal here is to change your spending habits, and the only way to do that is to have a constant reminder that of what your new goal is and what is causing that to not be achieved.
Organize Your Finances
With this newfound information, you will then organize your finances. There are various ways you can organize your finances. Still, ideally, you want to get into the habit of creating a spreadsheet through Microsoft Excel or Google Excel sheets that can have all of your financial data in one place.
>> Find out how to create a budget here with Financer.com
Regarding your financial spending habits, emotional reasoning, and organizational abilities, it can’t be overstated how important it is to have one piece of data you can quickly glance at and understand where you stand financially so you can avoid critical mistakes.
Break down your finances into a budget and have all your credit card debt broken down.
| Simple Excel Breakdown To Manage Credit Card Debt | Current Balance | Interest Rate | Credit Limit | Utilization Rate |
|---|---|---|---|---|
| CARD 1 | xx | xx | xx | xx |
| CARD 2 | xx | xx | xx | xx |
| CARD 3 | xx | xx | xx | xx |
Underneath the current balances, you can add up your current debt total. This spreadsheet will now serve as a powerful ally to you as you eliminate credit card debt. Think of it as your gym membership, it will give you the results if you put the work in.
It’s vital to open your eyes to the full extent of your debt pile when you learn how to get rid of credit card debt.
At this point, you should have a clear idea about what you can cut out of your budget to create spare cash flow to put towards paying off credit card debt.
Find Your Strategy
There are multiple strategies you can apply when you’re learning how to get rid of credit card debt. To be honest, it doesn’t matter which one you use, as long as you use one and stick to it.
Top Down Method
This method is also known as the debt avalanche method is where you start from the top and pay your highest debt owed credit card down first and then move on to the second and the third etc.
This method of paying down debt is fast. It can be the cheapest way to go in the long run as you are paying off the credit card debt that is costing you the most money.
Bottom Up Method
The bottom up method or the snowball method is the opposite of the top down when it comes to paying off credit card debt. You find your smallest credit card debt, and you pay it off first.
You then take the money you had assigned to paying off that card and move on to the second credit card.
This has become the preferred method for a lot of people, and it really will depend on your habits and how you view goals and money as to what works for you.
If you need to see a bill completely paid off quickly or else you will feel like the mountain is too tall, then absolutely pay off the smallest card first.
The idea behind the bottom up method is you get a sense of achievement quickly. Which, psychologically motivates you to tackle more significant debt and allows a sense of control as you see less debt load quickly.
The downside of paying off credit card debt using the bottom up method is that you may pay more in interest on the higher debt amounts for longer.
But remember, progress is progress. It’s all about knocking down credit card debt; however, works for you.
The Maxed Out Method
Paying off your maxed-out credit cards first is another way to attack the debt hill when you need to get rid of credit card debt.
If you’re urgently in need of a good credit score for the short term future, one of the first things you may consider in this case is paying off your most maxed out credit card first.
This is because maxing out a card actually has a big impact on your credit score.
So you may want to take it a step further and consider doing a bit of a hybrid approach, meaning you say pay off a large chunk on the card that is maxed out, then focus on cards with the highest APR until you can loop back around and eliminate any remaining debt.
Balance Transfer Cards
If you’re beginning to feel bogged down by a tightening financial situation, it also may be appropriate to consider signing up for a balance transfer card. They are sometimes an interest-free credit card as well.
You can transfer your most considerable debt to a card that gives you an interest-free period or more. Which will allow you to pay off more principal debt than interest. In theory, this should let you to smash down your credit card debt quickly.
If you go down this route, be sure to keep track of this interest-free period on your spreadsheet. A balance transfer card can help expedite your process but shouldn’t be looked at as a temporary free lunch by any means.
It may cut you a break on $1,000 worth of interest, but when your time is up, expect to be back to paying what you owe.
At Financer.com we would only recommend this if you:
- Don’t care if you credit drops a little due to opening a new account
- Are vigilant with paying off your credit card debt and know you can do it within the interest free period.
Debt Consolidation Loan
A debt consolidation loan is something worth considering when you need to pay off credit card debt. If your credit card interest is high, get a low-interest consolidation loan and pay off your credit cards.
Paying off your credit card debt with a personal debt consolidation loan is an option that does come with a lot of benefits. Suppose you’re aware of how to leverage your loan.
In that case, you can save a good amount when it comes to interest rates while also having an increase in your credit score.
There are two positives to getting a debt consolidation loan.
- You pay less interest if your loan interest is much lower than your credit card interest
- You obtain a sense of control over your debt load as you now only have one debt f rather than multiple.
Caution needs to be taken when finding the right consolidation loan. You want to ensure that you are not paying the same interest as your credit card debt. That will destroy the purpose of getting a loan.
Secondly, you want to make sure your spending habits have changed or alternatively destroy your credit cards, so you are not tempted to use them. They have available credit on them.
- IMPORTANT WARNING: Be very wary of Settlement Scams. Settlement scam companies often say they can negotiate your debt with your creditors, but they seldom do; instead, they prey on the vulnerable charge you an exorbitant fee.
At Financer.com we connect you to a range of trusted online lenders helping you find the cheapest loans to suit your needs. When it comes to finding a debt consolidation loan check out our wide range of lending options.
See A Financial Advisor
Booking an appointment with a financial advisor with good references could be what you need to finally get out of debt.
They can offer you a debt management plan and help you create a custom budget to suit your needs. They often have other resources available and are good at putting your whole financial future goals in order.
Talk To Your Creditors
It is worth a shot to reach out to your creditors to see if you can negotiate a settlement plan.
Depending on who you are with and how much you owe, you may find a cheaper solution through them directly when you are wanting to get out of credit card debt.
Sources
- Statistaaccessed on July 19, 2021
