While the best advice from most is to avoid it, sometimes incurring a hefty credit card debt becomes an unavoidable fact of life for many people. When faced with credit card debt paying it off quickly should become one’s key financial goal. This is because the interest rates on almost any credit card will be higher than a) any returns that can be made investing, and b) the interest rates being charged on almost any other form of debt. Here are a few steps to follow to pay off your credit card as quickly as possible.
1. Assess the Situation
The first thing you need to do when tackling credit card debt is to assess the overall situation. How many cards do you have? What are the interest rates? What are the minimum payments?
While this step certainly isn’t fun it will be necessary in order to plan your approach to reducing your debt as quickly as possible.
2. Call the Credit Card Companies
Calling the companies that hold your debt is the next step to managing it. Explaining your situation and asking to get interest rates reduced, even temporarily, or moving to another card you are eligible for with a lower rate is worth the phone call.
3. Re-allocating Funds
Next you need to consider your ability to move funds around to reduce your overall debt on the highest interest rate cards. Options include:
- Transferring Balances: Transferring balances from one credit card to another can reduce your overall burden. Moving your debt from a 25% card to an 18% can be beneficial overall. Additionally, there are Balance Transfer Credit Cards available with 0% rates for a period after you make a transfer.
- A Line of Credit: These typically have lower interest rates than a credit card so if you have one, or can get one, moving some of your debt to a line of credit is a good idea.
- Look at Your Savings: While it is important to keep some savings set aside for the unexpected you need to consider whether some of your savings can be moved to your credit cards.
- Secured Debt: Taking out a loan against some form of asset that you possess will likely see lower interest rates than you are paying on your cards. If it will help you pay down your overall debt more quickly this is something you need to consider.
- Family & Friends: If a loan could be available for low interest, or none, this may be something to consider. The ability to pay down debt years sooner by avoiding the compounding interest on all of your debts is worth it.
When considering any of the options above you always need to consider whether the transaction costs or transfer fees may outweigh the benefits of moving the funds.
4. Starting the Payment Process
When looking at all of your debts you need to ensure that you make the minimum payments required for all of your cards. After that you are going to want to put any additional funds onto the highest rate card. Once the highest rate card is eventually paid down you should move on to paying down the next highest card.
5. Maximizing Your Debt Payments
Now that you have an approach to how you’re going to pay down your cards you need to maximize the amount of money you can devote to paying them down in order to speed up the process. Here are a few tips:
- Lifestyle Changes: No one likes to do it but changing your spending habits on the little things can add a lot to the bottom line. Skip that coffee on the way to work and make it at home instead or pack a lunch from home as opposed to eating out.
- Budget Yourself: Putting yourself on a budget, from entertainment to food, and sticking to it can help you squeeze extra money out of your day to day routine and put it towards your debt.
- Stop Using the Cards: This may seem like a no brainer but the fact is that many people keep running up debt at the same time they’re trying to pay it down. Putting away the cards and sticking to the cash budget you prepared above will help speed up the process.
- Stay on Track: Once you’ve paid down a portion of the balance it can be tempting to think you’re out of trouble now and can kick those smart spending habits. Doing this can quickly find you back in dept.