Getting out of credit card debt is intimidating.
But you can pay it down and stop paying interest if you focus and persevere.
The only quick fix to credit card repayment is when you have a windfall, but how many times do you get windfalls in your life?
That’s why you need to avoid credit debt at all costs. If you’re reading this, it may already be a bit late for that but it’s useful to understand before we get to the tips.
Why you should avoid credit card debt moving forward
Most people grow up hearing that credit cards are a way of life. They come in handy during emergencies.
It’s that innocent. Right?
But what happens after the “fifth emergency” in the same month? Then it spirals out of control. And your paycheck is not enough to cover emergencies, leaving you broke and high on stress as you try to survive to the next payday.
Credit cards never seem like a big deal until you can’t pay the minimum balance. And before you know it, you’ve got $10,000 of credit card debt with nothing to show for it but an empty bank account.
So if you haven’t taken a credit card just yet, keep living below your means and save up for what you need. But if you have a credit card already and it’s giving you sleepless nights, then it’s time to kick that debt – for good.
Read on to learn more about each one of these methods and choose one that could benefit you.
Ways to decrease your credit card debt
1. Start with the most expensive balance (Avalanche Method).
The quickest way to get out of debt is to list them from the highest interest rate to the lowest. Make minimum monthly payments on each but throw ALL your extra cash on the credit debt with the highest interest rate.
The method is also called the “Avalanche” repayment method.
The avalanche method helps you pay the least amount of interest overall compared to other strategies.
Let’s say you have $500 per month that you can budget towards credit card repayment with the highest interest rate. Once you clear the first debt, channel the same amount to the next highest-interest debt until you eliminate all credit card debts.
The key is to maintain the $500 per month towards debt repayment until you clear all debts.
The avalanche method is good for those people who are keen on interest savings.
2. Try the snowball method.
With the “snowball” method, you pay off debts from the smallest to the largest.
Paying a debt in the shortest time possible motivates you to want to pay off more credit card debts and keeps you on track.
The snowball method works best if you want to build confidence and motivation.
Starting with a small debt enables you to get quick wins encouraging you to strive to achieve bigger successes.
You feel like you’re making real progress.
3. Transfer your credit card balance
If you have credit card debt but still have a good to excellent credit rating, you may qualify for a 0% APR balance transfer offer with a balance transfer credit card.
It’s possible to get excellent credit if you have been making minimum monthly payments on time).
The zero-interest introductory offer may last between 12 to 21 months and lets you transfer your higher-interest balances to the new card.
Credit card balance transfer will save you on interest during the 0% period, making it easier and faster to get out of the high-interest credit card debt.
However, always pay attention to the interest rate after the promotion period. Will you be able to clear your credit card debts within the 0% period, so you don’t get stuck with another high-interest rate card?
A credit card balance transfer is best if you want to keep track of your credit card payments.
4. Control your spending
Sometimes you may get into credit card debt because of unexpected emergencies such as medical.
But other times, it could be due to chronic overspending more than you are saving or earning.
To gain full control of your spending, creating a reasonable budget is the first step to alleviate your credit card debt.
Stick to necessities, your monthly obligations such as debt repayments, and irregular recurring expenses such as insurance, car repairs, and so on. You can also budget for nice to have such as entertainment – once in a while.
Go through the list of all your expenses, and find ways to save up in each category so that you can pay off debt.
Have a read through our list of the best budgeting apps.
The method is good if you lack a sufficient budget.
5. Grow an emergency fund
75% of Australians don’t have savings to cope with a crisis.
If you are one of them, then overlapping credit cards could be an easy trap to fall into. Also, if borrowing from your friends and family is not an option for you.
Build your short-term savings to at least $500 while making only the minimum payments on your existing credit cards. Do this before you start concentrating on clearing your debts.
That way, you can tap into your savings instead of swiping your credit card when you have unexpected expenses.
If you are a consumer with credit card debts and low income to save anything, you either reduce expenses or find ways to make extra money. If possible, do both make extra money and cut costs to avoid using a credit card to supplement your income.
This method is suitable for someone with low income and needs to build an emergency fund.
6. Use cash instead of credit cards.
If your main objective is to pay down your credit card debt, the last thing you want to do is add more credit card debt.
Paying with cash prevents you from accumulating more debt and helps you spend less because of the psychological act of paying cash.
It also requires you to plan and make certain purchases inconvenient, so you are likely not to make them.
7. Bonus point: Consider whether consolidating your debts might be a good next step
Debt consolidation is a useful way to combine multiple credit lines with high-interest credit card debt into one loan. The loan has fixed monthly repayments.
Debt consolidation can either be a debt consolidation loan, balance transfer credit card, or a home equity loan.
Debt consolidation makes it easier and less expensive to pay off your debts, but only if the consolidated loan’s interest is lower than that on credit cards.
Why would you consider debt consolidation?
A consolidated debt is a type of personal loan that helps you consolidate multiple credit lines with high interest into one single loan.
A consolidated loan also comes with a perk. Make full and timely monthly payments and see your credit score improve tremendously.
But the main perk of a consolidated loan is that it comes with a lower interest rate than credit cards. It means you’ll save more on your credit card debt if you qualify for the loan.
You need to carefully do the maths to make sure this makes sense in your situation.
In a nutshell
We have looked at multiple ways to get rid of that credit card debt hanging over your head. There is no one right method to pay off credit card debt. But what we have discussed are some tried-and-true ways that could help you get your balances to zero.
For any of these methods to work for you, it will depend on how much debt you owe, your credit history and what keeps you motivated to keep paying off your debt – even if you want to give up.
Paying off credit card debt requires perseverance, patience and persistence.
