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"Just do it."
That's what a lot of financial advice boils down to when it comes to paying off your credit card debt. Just buckle down, spend less, work more, and pay up.
It's not bad advice, but it's a bit out of touch. After all, if it were that easy to get out of debt, you wouldn't be browsing the Internet looking for tips on how to do it.
What those articles usually fail to mention is that paying off debt can be a long and painful process. On one hand, you're dedicating a huge chunk of your monthly income to paying down a balance that seems insurmountable without getting anything in return but the satisfaction of knowing that you're getting closer to living debt-free.
On the other hand, paying off debt often means denying yourself many of the simple pleasures that make it easier to get through the day. That $5 coffee you used to treat yourself to in the morning? No more. That night out you spent the whole week looking forward to? It's not going to happen.
To make things easier for you, we compiled four tips to make paying off your credit card debt painless, or at least less painful. We can't guarantee that you're going to love the process of paying down your debt, but we hope to make it a bit easier.
1. Focus your efforts on one debt
If you're in deep with credit card debt, chances are that you have more than one card you've been using to keep up with your lifestyle. You likely have a main card, an emergency card you only meant to use when you absolutely had to, and various store credit cards you signed up for to get rewards.
Having to deal with all these different sources of debt can be a struggle, and not just financially. Keeping up with a bunch of different due dates and minimum payments can feel like a full-time job in itself.
Our advice, then, is to focus your efforts on one debt at a time. Of course, you should keep up with your minimum payments on all the cards, but single out one card and pay extra on it to eliminate it sooner.
The benefits of this method are twofold. First, you'll eliminate a source of debt quickly, meaning you'll have more cash freed up to work on paying off other debts. It's a snowball effect (which is why this method of paying off debt is called the "debt snowball").
Past that, though, it also feels good to pay off a debt in its entirety, especially if it's been hanging around for a while. Victories like this are vital when working toward paying off credit card debt. Getting out of debt can feel like an endless struggle. It's easy to fall off the wagon, and wins like this help keep you on track.
How do you choose which credit card to focus on first? We'd suggest one of two options. You could target the card with the highest interest rate first, which can help reduce the overall amount of debt you ultimately owe faster. Conversely, you could target the card with the smallest overall balance first. You'll eliminate that card quickly, freeing you from at least one monthly payment.
2. Pay extra
Here's a secret that most credit card companies probably don't want you to know: Paying your minimum payment won't get you much closer to paying off your debt in its entirety.
You'll chip away at it, but you won't get far. When your interest compounds, if your balance is high enough, that minimum payment is likely just paying interest.
In that sense, "minimum" doesn't mean "the minimum you need to pay each month to get out of debt." It's more like "the minimum you need to pay to stay out of trouble."
If you only pay your minimum payment, you'll actually end up paying more on all of your credit cards over time. Since your overall balance remains high, you'll compound more interest every month, which can really add up!
So, to put it simply, paying more than the minimum pays off in the end (literally).
3. Make a realistic budget and stick to it
Everyone hates making a budget. Who wouldn't? After all, making a budget is about more than just taking stock of your income and subtracting your bills. You need to be realistic about how much money you'll need to spend each month, and how disciplined you'll have to be to actually pull it off.
This can be especially difficult for individuals with a pile of credit card debt. They didn't run up that kind of debt by being realistic about their finances. They ran it up by thinking short-term, making impulse buys, and spending far beyond their means, which happens to more people than you might think. Many times, unfortunate circumstances dictated the use of credit cards because it was simply the only option.
That said, making a budget is your first step toward better financial health and stability, and it's an absolute necessity for getting out of debt.
First, figure out your net monthly income. If you're salaried, this should be simple. If you don't have a set schedule, and you're an hourly employee, you'll have to make an informed estimate to arrive at a number. In either circumstance, it's best to estimate on the low side to account for expected downtimes, whether due to sickness, emergencies, or anything else that could result in a "non-paid day off."
Then, figure out your fixed expenses, including your rent or mortgage, your car payment, your utility payments, and the minimum payments on your other debt and bills that are essential to your day-to-day life.
Next, determine numbers for your other necessary expenses that aren't quite as concrete. These are things such as your grocery bill and gas for your car. You should also set a small amount aside for entertainment and recreation. You should be cutting back while you're trying to pay off your debt, but you're only human. Having a set budget for recreation allows you to structure your spending, set limits, and stay responsible.
Finally, compare your spending to your income. The money you have left over is the money you'll be able to use to pay off your credit card debt.
Remember that a budget is a living document. No matter how much thought you put into it, chances are you'll have to change things and adjust over time.
4. Consolidate your credit card debt
If you are making multiple payments on different credit cards each month, you already know how much of a struggle it can be to keep up. In that case, debt consolidation might be for you.
With debt consolidation, you combine all your different sources of credit card debt into a single, easier-to-manage monthly payment. Not only does this make it easier to keep up with your debt, but it can help keep your interest rates down as well.
There are different ways to consolidate your debt, each with pros and cons. We'll look at three methods, namely, balance transfer credit cards, loans, and debt consolidation savings accounts.
Balance transfer credit cards
With a balance transfer credit card, you use one new credit card to pay off the debt on all your other credit cards. It's still a high balance credit card, but it's one card instead of several.
Ideally, this would be a credit card with a 0% introductory APR offer. That way, you won't compound any additional interest on your new card as you're paying it off during the offer period.
The pros of balance transfer credit cards are simple. You simplify your monthly payments, only having to deal with a single payment that should be lower than the total of all your current minimum payments. You also stop interest from compounding during the introductory offer period, giving yourself a buffer period during which you can make a solid dent in your debt.
The cons of balance transfer credit cards, though, are that they can be difficult to get and hard to keep up with. To qualify for a decent balance transfer card, you need to have good credit in the first place, and if you've been struggling with your credit card debt for a while, this might not be the case.
On top of that, to get anything out of the balance transfer approach to credit card debt consolidation, you need to have the discipline and financial flexibility to stop using credit as much as possible. If you run up your new card as you ran up your old cards, you're not doing yourself any favors. You're just driving yourself deeper into debt.
Debt consolidation loans
Debt consolidation loans are another popular option for individuals struggling with credit card debt. With this method, you take out a personal loan to pay off all your debt at once. Then, instead of paying off your creditors, you just focus on paying off the loan.
Many banks and credit unions offer personal loans for individuals trying to get out of debt. These loans might be secured or unsecured, depending on your situation. A secured loan is tied to a piece of collateral (such as your house), while an unsecured loan is given to you on credit.
Other lending organizations specialize entirely in debt consolidation loans as well. If you're considering one of these organizations, make sure to do some research before you sign anything. Plenty of reputable lenders exist, but so do plenty of less-than-reputable ones who take advantage of those in debt.
The pros of debt consolidation loans are similar to the pros of balance transfer credit cards. You only have to worry about one payment per month, and that payment may have a lower overall interest rate and be less than what you were paying before.
In addition, debt consolidation loans have a pre-defined payment period. As long as you keep up with your monthly payments, you'll pay off the loan in a set amount of time. In addition, unlike with a credit card, you can't slip up and increase the total balance of your loan.
The cons are similar to balance transfer credit cards as well. In order to qualify for most personal loans, you need decent credit. You'll also need enough financial discipline not to keep overusing credit and digging yourself a deeper hole.
On top of that, if you take out a secured loan tied to a piece of collateral, such as your house or your car, you are putting that collateral at risk. If, for whatever reason, you can't keep up with your loan payments, you could lose that collateral, putting yourself in a much worse position than you were in before.
Debt consolidation savings accounts
With a savings account, you work with a debt consolidation company directly to pay off your credit card debt.
Instead of taking out a loan, though, you pay into a savings account for a set period. Generally, during this period, you stop making payments to your creditors and close your credit cards as well.
At the end of the savings period, the debt consolidation company takes the amount in the savings account and uses it to negotiate with your creditors. Your creditors then have a choice: (1) Take the lump sum now and forgive the rest of your debt. (2) Continue to hound you for payment and hope for the best. You'd be surprised how often they take the deal. After all, getting something is better than getting nothing!
The pros of this approach are that you likely end up paying less than you would over time to your creditors. You may also be able to eliminate your debt quickly, compared to other methods.
The cons are that there are no guarantees it will work, although expert debt consolidation companies have superb track records. It can also be harmful to your credit in the short-term. Although it's a good financial move to get out of debt, during the payment period, your creditors likely won't be happy that you're not making your monthly payments.
Whatever option you choose, though, you deserve credit for making moves to get yourself out of debt. If you're interested in finding out more about National Debt Relief, check out our reviews and contact us today!