It takes more than money to pay off your credit card debt. It requires motivation and determination to redeem yourself from a debt that’s spiraling down.
In a study done by the NerdWallet last 2016, it was established that a household with a credit card debt has a debt average of $16,061. According to the latest data, the average monthly income of an American household is roughly around $60,000. That means 27% of this income would go to credit card debt payment if you would desire to pay it off completely. Now, that chuck hurts your wallet real bad!
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An unmanaged debt can be haunting! Many think it’s impossible to be debt free once you’ve been buried under heaps of dues that’s long been overdue. There’s still hope! While there’s no surefire way to be completely debt free, we summed up the most effective ways to pay off your debts. This is a good start in putting an end to your credit card misery.
Pay off the one with the smallest balance first.
It may not add up when you do the math, but this hypes up the desire to pay all your debts completely. How does this work? For instance, you have a $5,000 and an $8,000 debt on different cards. Paying $3,000 on the $5000 feels better than splitting this amount equally to pay both cards. This gives you a sense of accomplishment knowing that you’re more than half way repaying the first card. This creates a desire to completely pay off the debt faster so you can move to the next card.
Pay it using a personal loan.
One may think, ‘It doesn’t make sense to pay a debt with another debt’. Well, that greatly depends on how well you can handle money. If you use a loan as payment to get rid of a number of credit card debts, you move and concentrate on paying for one loan. Rather than making a sheer number of payments on multiple cards, your payment is consolidated into one personal loan.
The big question is on how you qualify for a loan when you are in the worse credit situation. Getting a conventional loan may not be a viable option. But there’s one loan that allows this. A subprime loan can work as a personal loan, too. This type of loan does not require you a good credit history. In fact, it cares less whether you have a sparkly clean report or you have one that’s almost beyond repair. Evaluate your situation and your finances. Establish a payment plan using this loan. Use the money to target the ones with the biggest interests. This quickly loads you off the debts. Then, focus on the loan and how you can align your finances to pay it off.
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Track your spending.
This trick never goes old, but most of the time, it is easily forgotten. Listing down all your expected expenditures, categorizing them into weekly, monthly or annual expenses and comparing them to your actual expenses work very well. This gives you a clear visual on your spending style, helps you evaluate on where your money goes and on which parts you can save on. This helps you direct your finances to more important things, like debts and mortgage.
Start on the card that has the biggest interest.
When paying off debt, it makes sense to pay the one with the biggest interest because it saves you more money. Paying for the one with a 10% annual interest rate first than the one with a 6% annual interest will help you more by getting rid of the one that would require more money in the long run. The 6% interest will accumulate in time. But if you aggressively pay off the one which is bigger, you can then move on to paying the one with a lower interest.
The struggle here is being easily exhausted because you need to shell out a large sum in a short span of time; you end up not finishing the job. The real strategy is keeping yourself motivated in clearing out your debts completely. If paying for the biggest one first poses a great challenge, consider the first tip. Put your money on the smallest debt first. It conditions you mentally on the reality that getting rid of debt is very possible.
Talk to your credit card companies.
Explain your situation, site an extenuating circumstance and provide proof to explain why you’ve missed a couple of payments. Ask your credit card company how they can help you. Most companies will offer to lower your interest rates for a certain period for you can catch up with the payments. This may not work with one phone call, though, but try and try again. If you don’t get an offer from the first person you’re talking to, ask to speak to a supervisor. If you’ve been a customer for years, let them know. Customer loyalty may not be important to some companies, but to others, this matters. They will try and help you to keep you with them.
Debt management entails the right attitude, most of all. Sure, a few dine-outs a week isn’t a big deal. A bottle or two of fine wine won’t change your life, neither does a venti latte a day. But, small things and small decisions add up in the end. If you want to rid yourself of credit card debt, be firm in every decision you make. Which is best for you, a fancy lunch or a few dollars off your debt? It’s up to you to decide.
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