According to CNBC, eight out of every ten American’s is in debt of some sort. In fact, the median amount of debt in the average white American household is a little over $41,000.
With that being said, it’s no wonder that paying off credit card debt is such a big topic. With the virus of 2020, credit card debt is becoming an even bigger problem in the United States.
If you’ve found yourself struggling to pay off your credit card balances, keep reading this blog. Here are some useful tips that will put you on the path to financial freedom.
Analyze Your Finances
The first step to paying off your credit card debt is to take the time to assess the state of your finances and goals.
Sit down and take inventory or list of all of your expenses, the total amount that you’re in debt, and any other places your money is going. Once you’ve done that, compare those numbers to your income and try to find ways to eliminate certain expenses such as Starbucks coffee.
One of the best ways to do this is by creating a spreadsheet where the most important expenses, like rent, car payments, and credit cards, are listed first followed by other more luxury-type expenses. This will encourage you to take paying off your credit card debt as seriously as paying other necessity type expenses.
Consider Transferring Your Balance on Credit Cards
Before you make the decision to transfer some or all of your balance in a balance transfer, you should weigh the pros and cons of doing so.
In the case that you’re paying off a card with a high-interest rate and you’re only making the minimum payments, transferring your balance to a card with an intro deal with 0% APR for an extended period of time is a good idea.
On the flipside of that, if you’re on a card with a relatively low-interest rate and you’re able to make more than your minimum payments then you’re probably better off not transferring your balance.
Another option aside from doing a balance transfer that is available to those carrying a lot of credit card debt is to attempt to consolidate your debt with a personal loan with a lower interest rate. This will give you the ability to help your credit score and pay down your debt without paying out too much in interest costs.
Make a Budget and Stick To It
Once you assess your finances as a whole and how much you’re in debt, use that assessment to make a budget. To pay off your credit card debt as quickly as possible try to identify parts of your expenses that you can cut out and instead re-dedicate that money to paying down your balances.
Budgeting isn’t always terribly fun and can be frustrating at times, but your credit score and peace of mind will thank you. So, set your budget and don’t stray from it.
Control your spending by challenging yourself to stash away a certain amount of cash on a daily or weekly basis. If you incrementally put away small amounts of cash on a regular basis and hide it where it’s out of sight and out of mind you can help yourself save money and repurpose it for paying down credit card debt.
Another good strategy for managing your budget is using cash to make your payments for day-to-day purchases. At the beginning of every week get out as much cash as your budget has set for that week and only allow yourself to spend cash.
By having to physically pay for something with paper money you begin to be more conscious of how much you’re spending. It’s easy to lose track of how much you’re actually spending when you swipe a card. However, with cash, you have a physical representation in your hands that dwindles as you spend and keeps you more aware.
Set Up Automated Payments
Automated payments serve a couple of different purposes.
The first of these purposes is making sure that your payments are on time 100% of the time. Since your payment history makes up roughly 35% of your overall credit score, this is incredibly important. Even if you’re only late by a day or two, it can still drag your credit score down.
The second purpose of automated payments is to make sure that you’re paying at least the minimum payment every month. Ideally, you’ll be paying more than this, but automated payments hold you accountable for making the minimum contribution to paying down your debts.
Make Multiple Minimum Payments
Even if you have automated payments set up, you don’t necessarily only have to make one payment every month. Allow your minimum payments to take place automatically and then, if possible, pay a little more.
If you’re intimidated by paying large sums of money all at once toward your credit card debt, start by making small weekly payments that make it feel easier. Not only will this keep you motivated, but it will also enable you to pay off your debt faster.
When you pay more than the minimum requirement you cut down on the amount you pay overall because you cut down the amount that you pay in interest.
Stop Using Your Credit Card
This may seem like a no-brainer, but seriously! If you’re in debt with credit cards you should cease using them immediately. This is a plan Dave Ramsey advices.
Use the cash method outlined above or stick to a debit card for all of your purchases and bill payments.
Even if you’re using the credit cards and telling yourself you’ll pay it off immediately, it’s better to hide them away and just not touch them.
As a bankruptcy attorney for almost twenty years, I mostly use a debit card and stay away from credit cards.
Chapter 7 Bankruptcy
Sometimes credit card debt becomes to much of a stress in a persons life and there are no more options. Chapter 7 bankruptcy is an option to wipe out all of the credit card debt and other unsecured debts while in most cases keeping all of their assets. Chapter 7 has an income means test and it is advisable to use an attorney to evaluate if you can keep your assets if you file.
If you need more guidance and don’t know where to begin, contact us at Stone Bankruptcy Law Firm and we’d be happy to help. We have offices in Irmo, Columbia, Florence, and Greenville. We offer both Chapter 7 and Chapter 13 bankruptcy assistance as well as non bankruptcy options.