The credit card balance of the U.S. Citizens totals to more than $1 trillion. On average, every household with a credit card has a balance of $15,983, give or take.
Debts are always stressful. Imagine working hard to pay off a debt. You will hardly get to enjoy your sweat. Furthermore, your credit card provider charges you interest and some interests are moderate while others are high.
For now, shift your focus from the amount you owe to how you can clear this amount to achieve a debt-free state. We will discuss the tips to effectively manage your credit card debt. At the end of the post, you will know how you can clear your credit card debt faster.
This article will help you learn how you can easily eliminate your credit card debt using 5 simple steps.
Here Is How You Can Easily Eliminate Your Credit Card Debt in 5 Simple Steps:
1. Eliminate the Cause of Debt
How did you get into the debt situation? Start to figure out what got you into debt. It would be best if you worked to solve this problem to avoid maintaining, increasing or falling back into debt. There are measures you can take to eliminate the cause of debt.
i. Freeze Your Credit Cards
You may have a hard time freezing your credit card. However, you will only add more debt if you keep up your credit card expenditure. You can freeze your credit cards literally and figuratively.
You freeze your credit card figuratively if you unlink them from all services, for example, the shopping sites you are subscribed to.
You can literally freeze your credit cards to avoid using them by putting the credit cards in a plastic jar and adding ice cubes and water. Stick the jar into the freezer. You will be discouraged from undertaking in the unfreezing process just to make a credit purchase.
ii. Spend Using Cash at Hand
You may need to resort to cash or debit cards to make your purchases and pay off your credit card debt. You can also adopt the envelope cash system to direct your expenditure. You establish budget categories relevant to you and divide them into envelopes.
You will stash cash for each category. Make sure you avoid spending more than what each envelope allocates.
iii. Always Pay Your Full Credit Card Balance Each Month
If you have to use a credit card, ensure that you pay the full balance every month to avoid increasing your debt. You could assume that your credit card is a debit card. The assumption needs you to spend money that is present in your bank account.
For example, you can use your credit card to purchase a $20 outfit if that amount is present in your bank account.
2. Organize Your Finances
We all have varying financial power. You need to individually establish what you owe how much credit card debt you owe and how much you can pay off monthly. You will need to write down your debts and create a budget to organize your finances efficiently and effectively.
Neuropsychologists have revealed that you have a better chance at achieving your goals if you write down your goals. Here are 10 Personal Finance Tips To Help Make You Rich.
a. Create a Table for Your Debts
You can create a table that indicates your debt balance and interest for each credit card. You can either create a table on a sheet of paper or computer spreadsheets.
Take a Look at the Example Below.
|Credit Card||Amount Balance||Interest|
b. Create Your Budget
A budget will give you a plan to help you manage your finances effectively. It is like your financial rule book that stipulates your monthly expenditure.
The budget will help you to point out aspects of your finances; you can adjust to be able to save money and increase your capacity to pay off your credit card debts faster. For example, you can forgo some unnecessary subscriptions to make more funds available.
You do not need sophisticated financial knowledge to start a budget. There are easy steps to create a budget you can follow.
For example, you can implement the 50/30/20 rule. The rule requires you to allocate 50% of your income to your needs including your credit card debt balance, 30% to your wants, for example, Netflix subscriptions and 20% to savings and paying off other debts. Read more on how you can use the 50/30/20 rule to make a simple budget.
Apart From Debt Clearance, a Budget Will Help You To:
- Account for all your expenditure.
- Establish an emergency fund to face severe financial times.
- Achieve your financial goals faster.
3. Negotiate Your Credit Card Terms Or Transfer To Another Provider
What is the current interest rate of your credit card? Have you tried to negotiate with your provider to lower it? If the provider is unwilling to accommodate your terms, you can result to look into other credit cards with the lowest annual percentage rate (APR).
What Is Your Credit Score?
You will need to check your credit score first before you can negotiate or transfer to another credit card. It will let you know if you have any negotiating power. Credit card providers always favor someone with a good credit score.
You will also be able to maintain your score on the positive side to make it more attractive to credit card providers. Your credit score can help you make positive decisions to improve it.
Read more on How To Build Your Credit Score.
i. Negotiate Your Credit Card Terms
You find that the interest you pay over time amounts to hundreds of dollars. You can save some of this amount if you negotiate with your credit card provider. Most people shy away from these negotiations.
However, you simply need to ask. It will only take you about 20 minutes, and the worst possible outcome is rejection.
You can rely on the following negotiation tips to help you lower your credit card rates.
- Negotiate With Your Oldest Credit Card Provider. Credit card providers seek to promote and maintain long-term relationships with their clients. You will be using loyalty as your main negotiation point.
- Research on APRS of Other Credit Cards. You can use this as leverage. The company could end up matching a competitor’s rate to retain their clients.
- Be Persistent but Polite. Persistence does not mean you call every day to negotiate on a lower balance. How about you try once a month or every two months? Your credit card provider could end up listing you on their blacklist if they find you nagging. You can counter this by being polite to the customer service.
ii. Transfer Your Balance to Another Credit Card Provider
You can use a balance transfer request to negotiate a lower interest on your credit card debt. You may then proceed to transfer to another provider if your current provider fails to consider your request.
What Is a Credit Card Balance Transfer?
A balance transfer is where you some or all of your debt balance from one credit card to another. Most credit cards that accept balance transfers usually offer a 0% introductory APR rate for a year or even longer. You will save hundreds of dollars initially charged as interest.
Take a look at the example below:
Let’s say you have a credit card debt balance of $10,000, and your annual percentage rate is 15%. If you dedicate monthly payments of $903, the total interest will amount to $831.
If you choose to transfer your balance to a balance transfer card with a 0% APR, you will pay $0 in interest.
However, you should note that most balance transfer cards charge a balance transfer fee. The rate of balance transfer fees falls between 3% to 5%. In the scenario above, you will have to pay a transfer fee between $300 to $500. You will save at least $300 previously charged on interest.
What is the Impact of a balance transfer on my credit card?
A balance transfer does not really eliminate your debt. Your credit score will depend on whether you are active in paying off the debt or not. However, you may affect your credit utilization ratio if you close your initial credit card.
You can look at some of the best balance transfer credit cards before you make a decision. Furthermore, you can use the Balance transfer savings calculator to know how much you will save in a balance transfer.
4. Set Out A Payment Plan For Your Credit Card Debt
Do you have a better interest deal with your provider, or are you considering having a balance card transfer? Either way, you need to set out a payment plan that will help you clear your debt quickly and have enough left to carry out other operations.
There Are Three Methods That Will Help You Clear Your Credit Card Debt Faster:
i. Pay More Than the Minimum Amount Expected
If you rely on the minimum amount, you will end up taking years to clear your credit card debt.
Let’s say you have a debt balance of $5,000 with an APR of 18%. You follow the minimum monthly rate and pay $150 per month, and you will end up taking 47 months to clear it. Furthermore, the interest you will pay will total to $1983.60.
If you decide to add an extra $50 to your monthly payments, it means you will take 32 months to pay it off. Moreover, you will pay an interest of $1313.96. You will save $669.64 in interest charged.
You will take a shorter time if you exceed the minimum rate and use either of the following methods.
ii. Pay the Highest Interest Card First (Avalanche Method)
You will start to pay off the credit card that charges the highest interest if you resort to this method. You will pay the least interest with the avalanche method. Start by organizing the table you composed earlier starting with the highest interest and progress, respectively.
|Credit Card||Amount Balance||Interest|
It means that you will pay the minimum amount for the cards with the lowest interest and dedicate the more substantial amount to the card with the most significant interest.
For example, if you dedicate $800 to your monthly credit card debt payment, Card B will get the highest payment allocation as it charges the highest interest.
Your Allocations Will Look Like the Table Below.
|Credit Card||Amount Balance||Interest||Monthly Payment|
Once you pay off Card B, you will shift your focus to Card C which has the highest interest rate.
|Credit Card||Amount Balance||Interest||Monthly Payment|
|C||$3,000||20%||$100 (+600) = $700|
Keep up the procedure until you pay off the card with the lowest interest rate, which is Card A in the example above.
iii. Pay the Lowest Interest Card First (Snowball Method)
The Snowball method is like a reverse Avalanche method. You will start to pay off the card with the lowest APR. In the example above, you will begin to with Card A., and you will progress in that manner until you clear the card with the highest APR.
Both the Snowball and the Avalanche method give you a sense of accomplishment as you progressively eliminate one credit card debt after another.
5. Find Ways To Eliminate The Debt Faster
You can eliminate your debt faster if you allocate more money to your payments. How do you create more money to pay off your debts more quickly?
a. Save More
How much do you save per month? You can eliminate unnecessary things from your budget to generate more savings. For example, you could strike out the cable bill from your budget if you have Netflix.
For the basic needs like groceries, you should not eliminate them. You can try to shop with coupons or use apps that pay you when you buy. For example, Ebates, Walmart Saving Catcher, Drop, etc. There are numerous other ways to save money on groceries.
b. Minimize Your Bills
You could generally focus on minimizing your bills. You could opt for cheaper options or negotiating with your various service providers. Here are 15 Easy Ways to Lower Your Utility Bills.
What If Am a Poor Negotiator?
You can rely on Artificial Intelligence robots that will automatically help you to save money. If you pick an app like Trim, it will negotiate some of your bills on your behalf. The AI can contact your internet, cell phone, and cable service provider automatically and settle your bills.
c. Increase Your Income Avenues
If you increase your income, you will have more money to allocate to your credit card debt payments.
You Could Resort to the Following Methods to Generate More Income:
Negotiate a Pay Raise or a promotion at your current job.
Start a Side Hustle. Do you have any skills you could offer the freelancing world? Companies find hiring freelancers to be less expensive as compared to full-time employees. Thus they will source for skills like writing, editing, social media marketing, web design, etc. you could sign up to a freelancing platform to look for jobs.
What to Do After You Eliminate the Credit Card Debt
I would like to congratulate you on successfully paying off your debt. Your key goal at this stage is to stay out of debt. Follow the above tips except for the ones that help you to clear your credit card debt.
Some of the Essential Tips to Help You Stay Out of Credit Card Debt Include:
- Make sure your financial operations are guided by a budget.
- Ensure you avoid using credit cards to make purchases. If you have to use your credit card, make sure you have the purchase amount in your bank so that you can settle the debt quickly.
- Save more. You could invest in groceries instead of eating out frequently. Furthermore, you have the chance to earn cashback when grocery shopping and you also enjoy healthy meals. You should also cancel subscriptions you do not use or need. For example, you could choose between Cable TV and Netflix.
- Find ways to earn more money. You could try freelancing, or you could ask for a pay raise or promotion.