Do you have heart palpitations when your credit card statements arrive? Have you signed up for “paperless” credit card bills so you don’t have to panic when they come in the mail?
You may have spent more on take-out during 2020, or you couldn’t resist the after Christmas sales and whipped out your credit card. So now you have credit card debt. It’s so tempting to only make the minimum payments, but we all know that isn’t the best strategy. Let’s look at how to get debt free.
There are two main reasons to pay off your credit card debt:
- Credit card interest is the worst! It’s high, anywhere from 15% to 24% and adding this to your debt every month, increases your balance fast! You won’t be paying off your credit cards if you only make the minimum payments monthly.
- Your credit card balance may be dragging down your credit score. Your credit card debt compared to your available credit is a big deal when calculating your credit score. Paying down your credit card debt significantly improves your credit score.
How do you tackle paying off your credit cards?
Tackle ONE credit card at a time. You can do this using either the avalanche method or the snowball method.
- Avalanche method targets your highest interest rate card first and gets that paid off. Then attack the next highest interest rate credit card, etc. All the while you are making minimum payments on your other credit cards. This method reduces your interest expense faster.
- Snowball method targets your smallest balance credit card, pays that off, then pays off the next highest balance, etc.Those small victories help keep you motivated. At the same time you’re making the minimum payments on your other credit cards.
Consider a Balance Transfer. If you need breathing room and don’t want interest to continue piling up, consider an offer of 0% interest for a specific time. Your payments will go to paying off debt without additional interest adding to the balance. Make sure the balance gets paid off by the due date (typically six to eighteen months).
Take a Close and Hard Look at your Budget. You’re going to have to reassess your spending habits to free up cash to apply to your credit card payments. (No one said this was easy!) This may mean no weekly manicures for a while, or reducing the number of streaming services we’ve signed up for during this last year. It may require fewer take-out meals and more home cooked meals. Put a pause on shopping both in store and online.
This requires you to track your spending using Mint or YNAB expense tracking systems (or a number of other good systems). Record all of your transactions, including cash and debit card purchases. This tells you where your money is going and where you can reduce your expenses, at least temporarily to get the credit cards paid off. Do you need to take Uber everywhere? Or use door dash for every meal?
With your great budgeting skills and commitment to succeed, you’ll get your credit cards paid off and feel great doing it. Who doesn’t want to save on interest expense and not be afraid to open your credit card statements?
If you need more help paying off your debt, schedule your free 20 minute call with me, your Money Mama Mentor.