So you’ve found yourself in a situation with a rising credit card debt? I want to say “we’ve all been there,” but the truth is — some people were smarter. I confess – I wasn’t one of them; I had to deal with my debts in the past. Luckily that’s now behind me.
Credit cards are the trickiest things banks have ever invented. With no cash at hand and all those shiny products around us, it can be hard to say “no.” After all, we can pay now and think about paying it later.
Which led us to the credit card debt many Americans have. And sooner or later, we all have to pay for it… Here’s a 5-step process to tackle the credit card debt. It worked for me and I’m hoping it will work for you, as well.
1. Create a Budget
We can’t emphasize this enough; it is essential to know how much you’re spending on a monthly basis.
Write down all your expenses, starting with those you can’t live without out, such as your mortgage or rent, utilities, cell phone, internet, food and all the way down to entertainment costs. The idea of this exercise is to know where you your money goes.
As you’re doing this, you should realize where the cuts could be made. If you’re anything like me, you’ll come to a conclusion that almost half of your spending is on things you can perfectly live without. We’re just human beings, so I guess that’s alright. The important thing is to come up with a plan and this is a part of that plan — to get out of debt.
So at the end, you should create what is often referred to as a baseline budget that contains only the necessities. This budget should help guide you on your way to the debt-free “state.”
2. Don’t Buy Anything You Can’t Afford
You are now in the “getting out of debt” phase, so if you can’t afford something – don’t buy it. If you really need something, well, get it but DO NOT use the card you’re trying to pay off.
It might sound obvious, but you know how they say – the common sense is seldom common practice. Therefore, we have to warn you to hide the credit card you want to pay off to some safe space, out of your reach.
If you have a balance already on the card from the previous month, using it will immediately start interest charges on that amount. This effectively kills the entire debt elimination process. So don’t do it!
3. Automate Payments
Online banking has made it easier to automate all sort of things, including your regular monthly payments. Use that to your advantage.
Set auto-payments for all recurring bills, such as mortgage, utilities, student loan & car payments, cell phone bill and so on. One way or another, you will have to face these costs, so do it as early as possible.
After clearing out those costs, you know what you’re left with. This is your entire budget for the month, and remember — it also needs to include food. That’s another thing you can’t live without.
4. Put Any Extra Cash Towards Your Debt
Got a bonus at work or something extra from your side gig? Don’t waste it on new electronics or a fancy trip; instead, use it to put something extra towards your debt repayment.
Getting extra money should NOT be an invitation to go on a shopping spree. Sure, it can provide you with a temporary adrenaline rush, but at the end of the day – physical items seldom lead to true happiness.
Speaking of which, you know what will make you happy? Being debt free! So do the right thing to get out of debt as fast as you can.
5. Balance Transfers Could Be Your Friend
This implies that you know what you’re doing, cause if you’re not careful – you could end up in even more debt. That being said I must add that I love balance transfer credit cards, but having been caught in a trap once — I know what I’m doing with them.
If you can qualify for a credit card with a long 0% APR period – get it. You should, however, read the fine print – how much the balance transfer costs? Typically it’s between 3 and 5 percent, which is ok, but you have to add it to your calculations.
Once you get a good balance transfer card, use it to pay down credit card debt with lower interest.
But — here’s the important part — if you don’t pay off the debt during the 0% promotional period, you will find yourself dealing with more accumulated debt than you started with, and at an even higher APR.
So what are you waiting for? Get that budget ready and proceed to next steps on your journey to the debt-free lifestyle. Good luck!