Credit cards are useful for multitudes of financial needs in today's world. Young adults learn about managing money and building their credit through credit cards. As we get older and bills get higher, we use credit cards to pay bills, manage large expenses, and more. However, what do you do when you rely too much on credit cards, and now you find yourself stuck in overwhelming debt? Read on to find 5 practical ways to manage your credit card debt and pay it off.
photo from wix.com
Step 1: How do you spend your Money?
As with many life changing decisions, the first step is to look inside. Where do you find your financial priorities? Ask yourself the following questions:
What are my fixed expenses monthly?
What financial goals do I have? (E.g. more family vacations, bigger savings, paying off a home, etc.)
Where do I spend money when I get a bonus?
Do I tend to impulse buy? If so, what do I impulse buy?
Where do I see myself financially in 5 years? In 10 years?
These questions are a great way to start reviewing how you spend your money and are a starting point for building a manageable budget. Thanks to the many Internet websites and apps available, you can now budget on the go and automatically. Apps like Mint, Pocket Guard, and YNAB (You Need a Budget) can help you make goals and stick to them. Of course, you can always consult with a financial adviser or accountant if you need more help with creating your budget.
Step 2: Use extra money wisely
How do you use surplus money from a bonus, commission check or tax refund? Instead of snagging that new purse or phone you've been eyeing, why don't you use that extra cash to pay off your credit card debt? Using your newly created budget from Step 1, you can responsibly allocate what you do with surplus money!
step 3: the avalanche method vs the snowball method
The Avalanche Method
The avalanche method calls for paying off the account with the highest interest rate first, and then paying minimums on your other expenses until you've paid off all of your cards. You'll start to see that every time you pay off an account, you have more money to put towards your next highest account. This method may seem like a slow fix, but once you start paying off your accounts, you'll see how big the effect is on your finances!
The Snowball Method
The snowball method is quite the opposite of the avalanche method. With this method, you'll pay off accounts with the lowers balance first, and then build to your larger and larger accounts. While it may give you more immediate satisfaction, this method will take longer to pay off larger debts. However, if you need to pay many small debts or are overwhelmed with the amount of debt, this method may help you to better stay on track and motivated toward paying off your debt!
Step 4: consider a balance transfer
A balance transfer is when you transfer your credit card balance to a card with a lower interest rate. Over time, you'll be spending less on interest and more on paying off your debt. Some companies even let you waive a transfer fee if you pay off the original debt within a certain amount of time, and some even let you pay 0% APR for a short time to let you get a head-start on paying off your debt. This strategy fits well with the avalanche method since you are focusing on long-term debt payoff.
step 5: consider a personal loan
We understand, credit card debt can feel overwhelming, but reading this post is the first step in the right direction. If you're truly overwhelmed, consider taking out a personal loan. A personal loan can help your credit score because it is an installment loan rather than revolving loan. This strategy can also help you pay fewer payments and possibly save you with lower interest rates. Even if you take out a loan, it is encouraged that you still keep your credit card open to help with your overall credit.
some final thoughts
Credit card debt can be managed through changes in lifestyle and creating budgeting strategies with your financial priorities in mind. If you find yourself overwhelmed by credit card debt, consider seeking advice from a financial adviser or accountant to help you get on track and stay on track.