Credit card debt can drain your wallet badly. The interest generated on revolving balances every month prolongs the paying Time and also raises the amount of the debt. But you can eliminate credit card debt if you have the right strategy in place, and even save yourself lots of dollars in the process.
There are resources, tools, and plans that can be of help in tackling your credit card debts. With the personal finance “kit,” you will have everything required available to help you manage your credit card debt and finally obliterate it.
The High Cost of Credit Card Debt
One evident cost of having a credit card balance is interest. If you do not pay your account fully, you will continue to have part of your monthly payment being applied to finance charges. The implication of this is that when you make payment over your credit card, only a fraction will impact your balance.
Your credit card debts however cost you a lot in other ways too. For instance, your creditors and lenders consider the active debts you have before finalizing your new loan applications. So, having more debts equates to having higher interest, which is risky to your credit score and also increases your monthly payments.
When your debts build up, it would muzzle your cash flow, and cause restrain on the cash available for you to achieve other financial goals which could include saving for a gadget, saving for retirement, or building an emergency fund
Ultimately, the effect of having debts on you is beyond just money. Studies have shown that being in debt has some psychological burden that can cause damage to your cognitive ability. Having lots of debts can also cause high blood pressure, higher perceived stress, and depressions.
Credit Card Debt Reduction Plan
If you implement the right measure, you will successfully clear out your debts and become debt-free.
1. Know Your Total Debt Amount
It is crucial to find out the total amount you are owing. You may want to get your credit card statements and list out vital details such as your interest rate and balances.
2. Figure Out Your Spending
Knowing how you spend and making necessary adjustments is very important to becoming credit card debt-free. The more you are able to retain funds, the easier it would be to pay off your credit card debts. See areas you can cut down on your spendings to manage your monthly bills and manage your budget properly.
It is also important that you stop having new debts build up while paying off the current ones. If you make new purchases with your credit card, you’ll counteract your progress in eliminating credit card debt.
To learn about your spending, the best thing you can do is to track every of your expenses. You’ll find several tools and apps that can help you achieve tracking your spending. And once you are able to track your spending for one month, you’ll have set the foundation ready for simple budgeting.
3. Consider A Strategy For Paying Off Your Debt
There are some popular strategies that can be helpful to you in paying off your credit card debts. The debt avalanche strategy and the debt snowball strategy are two of the most popular strategies. The debt snowball payoff strategy has proven to be the easiest and the most straightforward of the list.
When you use the debt snowball method, you focus your debt repayment on the smallest balance first, and down the largest. This method helps you to win gradually and stay motivated with the victories till you have fully cleared your debts.
The debt avalanche method is an alternative to debt snowball strategy. It focuses on credit card debts with the highest interest rate first and moves down to loans with the least interest amount. While this method may take more time unlike the debt snowball strategy, it however helps to save on interest in the long run.
Debt Snowball Strategy vs. Debt Avalanche Strategy
The debt snowball focuses on the smallest balance first while the debt avalanche method deals with debts with the highest interest rate first.
The snowball approach makes minimum payments while also applying the same approach to the next smallest credit card balance until full debt is settled. Avalanche pays the highest interest debt and applies the same approach to the next card with the highest interest till total balance is cleared.
4. Follow Plans Strictly
Once you have set up your desired debt repayment method, follow it strictly. You may also want to make some adjustments to your plans after some months, like if you have to pause making extra payments on your debt or if you double up on the payments. When you adjust in a progressive way from time to time, you’ll have a better estimate on how well you are doing with attaining your debt-free goal.
Balance Transfer Cards and Personal Loans
Managing and eliminating your credit card debts doesn’t require so much. You only need your passion to achieve your debt-free go and some easy-to-use calculators and spreadsheets. In addition, you can also achieve getting out of debt by consolidating your high-interest debt into lower interest loans.
Balance Transfer Credit Cards
You can pay off your credit card debts easily by consolidating balances onto a lower-interest rate balance transfer credit card. Check out for cards with low balance-transfer fees and long promotional periods while in a shopping spree. You may want to consider the Citi Simplicity and SunTrust Prime Rewards Card.
The Citi Simplicity offers a lengthy promotional period that exceeds that of an average offer. It takes up to 18 months for transferred balances which is a year and six months to clear out your balance.
The SunTrust Prime Rewards Card helps to set your interest rate at the Prime Rate for 36 months without charging you on balance transfer fees, as long as your balance is transferred within 60 days if activating the card.
In the process of paying off your balance you do not have to cut up your card or close your account. You may simply consider taking out the cards from your wallet and pay cash for your purchases till you are fully debt-free. This is helpful to avoid accumulating more debts on your credit card while still making debt repayment.
You may also want to consider consolidating balances with a low-interest-rate personal loan. It is another option to balance-transfer credit cards. With this, you will not have cause to charge new purchases with it. In addition, you’ll have a fixed monthly payment that can help you do your budgeting easily and realistically.
Making Your Credit Card Debt Payoff Plan a Success
Paying off a huge credit card debt can be quite intimidating from the start, but with a realistic plan in place, you will find the plan much easier and achievable. This may take several months or even a few years, but it will be finally achieved if you keep focus. And being finally debt-free is one beautiful thing that can ever happen to a borrower.