The Credit Card Debt Payoff for Beginners
Luckily, there is a way out. Here’s the credit card payoff plan for beginners.
Step 1: Know what you owe
Denial is a powerful factor when it comes to debt, but to get out of debt, you have to face the numbers, no matter how gruesome they are. Log into all of your credit card accounts and tally up the total. Write down the final balance on a piece of paper and keep it in your wallet. Post it on your bathroom mirror. Facing the facts can be tough, but you need to see the numbers to create a plan.
Step 2: Check your interest rates
Interest is what makes paying back debt a pain. It’s the extra fee charged for the convenience of borrowing money. Credit card interest rates may vary, but typically they can be fairly high. If you have multiple credit card balances, write down your interest rates next to your total balance for each loan. It’ll come in handy with the next step.
Step 3: Choose a debt repayment strategy
After tallying your total balance and knowing the interest rates on your credit cards, it’s time to choose a debt repayment strategy. There are two tested methods that can help.
The debt avalanche method focuses on paying off the highest interest debt first. During this time, you pay the minimum on your other credit card balances. This strategy saves money on interest, but it may take longer to chip away at the balance.
The debt snowball method pays off your smallest balance first, while paying the minimum on the rest. This method is effective as it offers quick wins and doses of motivation at the start. The downside is you could pay more in interest.
Step 4: Calculate how much you can really put toward debt
The minimum payment on your credit card can be a trap. After all, it’s just the minimum, which makes it hard to climb out of debt. If you’re serious about tackling credit card debt, look at your income and expenses to see if there is any wiggle room to cut back. For example, consider reducing some of the “wants” in your budgets like going out for lunch or overpriced movie dates. If you prioritize paying off credit card debt over everything else, how much can you realistically put toward debt each month, while still paying your bills? You want to create a plan that helps you get out of debt faster, while also managing your day-to-day expenses.
Step 5: Earn more money
Cutting back on your expenses is a great initial strategy, but to overhaul your progress, you also want to focus on earning more money. This can help you become debt-free sooner. Consider getting a job on nights and weekends. Using the sharing economy, there are many ways to quickly earn more money. Let your friends and family know you are willing to help out and that you’re looking for gigs. Ask for a raise at work. Adjust your tax withholding if you typically get a tax refund. There are many ways to earn more — the key is to get started.
Step 6: Put the credit cards away
The solution to your problem isn’t the thing that created the problem. In other words, you don’t want to use credit cards while you are trying to pay off credit card debt. It’s too easy to get back into bad habits rather than focus on paying off balances. Put the credit cards away and start using cash and a debit card. This can help you spend what you have and detox off of credit.
You can do it
Using these six steps, you can eliminate credit card debt. It’s not an easy task, and one with a lot of ups and downs, but it’s totally doable. Once you’re debt-free, your money will be yours and your hard work will pay dividends. Ready to get started? Download our Illuminate app to rock your budget and pay down debt.