Since their introduction in the 1950s, credit cards have given American consumers more buying power because of how easy and fast transactions became. That said, credit cards have a host of disadvantages that come with their use.
There are times when you can go overboard with credit card use. The COVID-19 pandemic has added another layer to this issue, with many ending up in even more dept due to the pandemic. According to Debt.org, credit card debts amounted to $820 billion in the fourth quarter of 2020.
Are you experiencing the same problems with your credit card bills? Keep on reading for some top tips on how you can effectively get out of credit card debt.
Make a Plan
Before jumping on different strategies, start by strategically mapping out your repayment plan. Set target amounts that you can pay, especially when the debt has high interest. It is nearly impossible to pay balances all at once, so you have to be patient and take one step at a time.
Remember that you have to be careful and you cannot make hasty actions because making mistakes when it comes to paying and consolidating debt can make your debt situation worse.
Curb Your Spending
It is easier to acquire more debt than to lessen it. You have to be thrifty while you are paying your off debts—after all, you can’t increase your balance further!
One of your utmost priorities is paying your debt, so you have to keep that in mind and cut back from buying unnecessary things.
Put away your credit cards from your wallet so you will not be tempted to use it for the meantime. Additionally, try to use cash as much as possible for your daily purchases: this will prompt you to count just how much you’re spending.
Track Your Expenses
Make a list of the important things you allocate your money to like buying food, paying bills, and transportation. Once you do this, you will realize where you are spending too much, what you can reduce, and you will be more organized with your money.
You have to keep in mind that you are not as free as a bird to just throw money around. Remember that you want to get out of your stressful debt and you have to save in order to achieve that.
Find Extra Sources of Income
If you want to get ahead with your debt repayments, find a side hustle to supplement your cash flow. With this strategy, you won’t have to stretch yourself too thin. If you have a full-time job, you can work on the weekends or after work hours for a few dollars you can then add to your repayments.
Think and reflect on the skills you have now or things you are passionate about. You can offer your expertise as a freelancer or you can sell products online. The possibilities are endless!
Try the Avalanche Method
This is a debt elimination strategy also known as debt stacking, and it has been hailed as the best way you can pay off your debts. It is a great tactic to pay off several credit cards and can dwindle the amount of interest you have to pay.
In this method, you will pay your debts in a decreasing order: prioritize the card with the highest interest rate first, then the other credit card debts with lesser interest rates follow suit. You still put minimum payments on all the accounts you have debts in, but you put more money in the account that has the highest interest rate as much as you can.
Once the debt in the latter account has been paid, you then move on to the next account with high interest until you reach the account with the lowest rate. This method could take some time to show some notable changes, but it is definitely worth it because it will lift off the high interest debts that can be difficult to deal with.
Try the Snowball Method
Are you someone that gets motivated by small achievements? If yes, then this method is for you. Some prefer the Snowball Method, arguing that it yields better results than the Avalanche Method.
All you have to do is focus on the smallest balances first, and climb your way to the largest. You pay minimum payments on all accounts but add something extra, as much as possible, to the account that has the smallest balance. Once you are finished with the smallest debt, you can move on to the next larger ones until you pay off everything.
This method does not only contribute to your motivation to get rid of your sea of debts, it can also positively impact your credit scores quickly as it reduces the number of debts you have.
Consolidate Debt With Balance Transfers
Debt consolidation through balance transfer credit cards is a reliable way to escape credit card debt. In this method, you transfer the balance of an account with the highest interest rate to a lower one, so you can pay less.
Here’s the simple strategy: apply for a new balance transfer credit card that offers 0% APR on balance transfers. Once approved, pay your debt on the new card before the 0% APR period reaches the end of its availability and escape the horror of high interest rates.
Keep in mind that you have to be careful to not rack up more debts using this method by making sure you understand all the terms, conditions, and know if there might be hidden fees.
Most U.S. debt payers agree that transferring balances have helped them —which can be the same for you if you are disciplined enough to follow a strict payoff schedule.
Take Out a Debt Consolidation Loan
If paying off several credit cards is becoming too taxing for you, you can apply for a debt consolidation loan. Most of the time, you can do this by applying for a personal loan and using the amount to pay off your credit card bills.
However, ensure you conduct some research about loan providers first. Familiarize yourself with the different rates and fees you will get when you take out a loan from them.
Before applying for a personal loan, make sure that the provider offers a lower interest rate than those of your debts—you do not want to add more to your headache collection. Then, follow the payment terms of the personal loan until you manage to get out of debt.
This method can help boost your credit score and mitigate debt overload, but remember that you have to keep your credit cards open, reduce your spending, and be responsible to not make your situation worse.
Partner With a Debt Settlement Company
If you are already past your credit card dues and able to make big, one-time payments to your creditors, then this method can surely help you. You can either hire a debt settlement company to do everything for you or you can settle your debts alone.
Keep in mind that hiring companies can be expensive and there is a risk of getting scammed. If you choose to work with a settlement company, conduct your research and find a company that you prefer. They will be the ones to handle all the process and then wait for them to ask you to make payments via an escrow account that will be used to pay your creditors.
For those who prefer to settle debts on their own, contact your creditors and inform them that you are willing to settle your debts by offering a lower amount than the current balance. Be patient when it comes to negotiating with the creditors until you reach an agreement that favors you, then get the offer in writing to legitimize it.
Debt settlements are usually a last resort for when you really cannot pay your credit card debts anymore. Job loss, medical problems, and expensive legal cases like divorce can convince your creditors to let you negotiate your debt.
However, some creditors will give you a chance to settle your debts when they have noticed you are frequently late or have not been making payments at all.
Credit cards are undoubtedly useful, but credit card debts are one of the things you will never want to keep. These debts can turn into a black hole that continues to pull you down if you do not have a solid plan and discipline in paying off your debts. Moreover, it certainly negatively impacts your credit score.
However, being under debt is not a dead end. With the right decisions, proper goal-setting, and being disciplined, you will surely get back on track with managing your credit card use.
Credit card debts are truly a menace, but with the right action, you can still get out of it. If you have questions or debt management tips to add, leave a comment below and let us know!