Six Strategies To Pay Off Credit Card Debt
If you have a considerable amount of debt and feel overwhelmed about how to pay off credit card debt, you’re not alone.
According to a 2015 NerdWallet analysis, the average U.S. household has more than $15,000 in credit card debt.
Today, we share some strategies to help you pay off credit card debt.
Create A Budget
Start by creating a personal budget.
David Bakke, a Money Crashers contributor, says “the first step to solving your debt problem is to establish a budget.”
A personal budget is a financial plan which allocates your income toward expenses, debt repayment, savings, and retirement planning.
There are many online personal finance tools like mint.com to help you build your personal budget.
Pay Off Most Expensive Credit Card Debt First
Understand what interest rates you pay on each of your credit cards.
Then, sort your credit cards from highest interest rate to lowest interest rate.
Aim to pay off the balance on the card with the highest interest rate first.
Hitha Prabhakar, mint.com spokesperson, states “by paying off the balance with the highest interest first, you increase your payment on the credit card with the highest annual percentage rate while continuing to make the minimum payment on the rest of your credit cards.”
Pay More Than The Minimum Balance
It’s important to make the minimum payments on your credit card bill to ensure your credit ratings aren’t affected negatively.
However, to make a real difference, you need to pay more than the minimum balance on your credit card statements each month.
Prabhakar explains “paying the minimum, usually two to three percent of the outstanding balance, only prolongs a pay off credit card debt strategy.”
She advises “strengthen your commitment to pay off credit card debt by making weekly, instead of monthly, payments.”
You could also double up on your payments to pay off credit card debt.
For example, if your minimum payment is $100, try to double it and pay off $200 or more.
Use Your Work Bonuses To Pay Off Credit Card Debt
If you receive a year-end bonus at work, allocate some or all of the money to pay off credit card debt.
It may be tempting to use the bonus toward vacation or a luxury purchase. After all, you’ve worked hard all year to earn the bonus.
However, it’s more important to fix your finances first before making a purchase you may not really need.
Take Advantage of Balance Transfers
If you have a high interest credit card with a balance you know you can pay off in a few months, you should move the debt to a credit card which offers a zero-interest balance transfer.
Make sure to pay off the debt before the balance transfer expires.
Trent Hamm, founder of TheSimpleDollar.com, warns “you’ll need to pay off the debt before the balance transfer expires, or else you’re often hit with a much higher interest rate. If you do it carefully, you can save hundreds on interest this way.”
Stop Your Credit Card Spending
If your debt is out of control, stop using your credit cards.
WiseBread contributor, Sabah Karimi advises “remove all credit cards from your wallet, and leave them at home when you go shopping. Even if you earn cash back or other rewards with credit card purchases, stop spending with your credit cards until you have your finances under control.”
Following the above mentioned strategies to pay off credit card debt can help you fix and regain control of your finances.