How to Pay Off Credit Card Debt: Finance Goals 101
If you are like most people today, you find yourself facing a large amount of credit card debt. This is a problem that we often find ourselves in today. As the price of items continue to rise and the amount of money we earn decreases, we find ourselves turning to credit card. Credit cards can be incredibly helpful when used properly. They can also get out of control quickly, especially when you are spending more than you can afford.
All too often we get caught up in a cycle of spending too much, not being able to pay it, becoming embarrassed or ashamed and then spending more. Do not despair. There are some proven methods that can help you get out of debt. Keep reading to find out more.
How to Get Rid of the Credit Card Debt
Credit card debt is not a great type of debt to have. It honestly does nothing for you. It can get out of control quickly and is difficult to get in check after that happens. There are some benefits to credit cards when they are used properly. However, it seems not many people are good at that.
Before you can fully understand how to pay off credit card debt, you need to understand how they work. When you have a credit card, it is backed by a back that is agreeing to allow you access to borrow a certain amount of money to make purchases. You are promising to pay back that money each month, but either paying off all of the money you used, or an agreed upon percentage, known as the minimum balance due. The problem is when you only pay the minimum amount, you are not really making a dent in the amount of money you borrow.
Often times, when people are using credit cards, they often do not have the money to pay it back. So, think well before you decide to get one, and if you do, we suggest you take a look at some options below:
Determine What is Important
When it comes to paying off credit card debt, you will come to a point where you have to decide what it most important to you. You will have to make difficult choices. When you see your debt growing, and you determine that you want to get it under control, you will have to stop spending as much money as you have in the past. There may be moments when this is difficult for you. It is challenging to change your spending habits. It is not impossible, but it can be difficult. This is why you need to determine your financial goals and what is most important to you. When things become challenging, you may need to rely on it. This should be the first step before you begin considering paying down your debt. You need to understand just how important it is to you.
Snowball Concept
One of the best ways to learn how to pay off credit card debt is the snowball concept. This is a simple concept, but it takes commitment and consistency. You should write down all of your credit card debt and then put it in order from smallest amount to largest amount. Let's say that you have four credit cards and you have listed them in order. You pay the minimum payment for the bottom three, which should be the largest amounts. Then, you pay as much money as you can absolutely afford on the top one. Hopefully, this is far more than the minimum payment.
Once you pay off the top credit card, you move to the second one on the list. You apply the same concept to this card, except now you only have three to pay. You pay the minimum amounts on the bottom two cards and pay as much money towards the top one as you can.
The purpose of this concept is it allows you to focus on one debt at a time which is much easier for your brain to handle. Also, by focusing all your money and energy on one card, you can pay it off faster and get a quick win. This can help keep you motivated towards paying off the rest of your debt. It is easy to feel like debt is a mountain you cannot climb, but this process can you help focus on what is important.
More Than the Minimum
Earlier in this article, I mentioned the minimum payment on your credit card. One of the key ways of how to pay off credit card debt is to pay more than the minimum. Every month, your credit card company sends you a statement. This statement includes your minimum payment. This is the smallest amount that you can pay on your credit card and remain in good standing with them. That means you will not accrue late fees and they will not report you to the credit bureaus for late or non payment. However, it does not get you close to paying off your credit card. It is a minimum for a reason. It is truly a bare minimum. This is a percentage of the amount you owe the credit card and it will not prevent you from accruing interest charges. The only way to do that is to pay off your credit card each month.
A little math: Explained in Number
I am going to explain in numbers why paying off the minimum amount is not the best way to go when making a credit card payment.
If you have a credit card balance of $2000 and the minimum payment is $100 and that is all you pay, you still owe $1900, which accrues interest. If you accrue 10 percent interest, this is $190 added to your balance. Not only is that more than your minimum payment amount but now you owe $2090. Now, imagine this scenario occurs for several months. I am using fake numbers and dramatizing for effect but this is not far off from what happens to people every month.
This is why you should pay as much as possible, which hopefully is the full amount, each month.
Consolidate Credit Card Debt
Another tip you should learn about how to pay off credit card debt is to consolidate your debt. Sometimes, the debt just seems to be too much and you cannot get a handle on it. If you consolidate your debt you can potentially take high interest credit cards and obtain a loan at a lower interest rate. This can help you pay off your debt faster without increasing the amount of money you pay each month. When you consolidate your debt into one payment, you are able to focus on one payment. When you consolidate your credit cards into a lower interest loan, you can pay off your credit cards and one have a set payment each month. If you keep your credit cards, there is the possibility you can continue to use the credit cards and increase your debt. Consolidating your credit card debt only works when you pay off your credit cards and cancel them so you are not tempted to use them.
Create a Budget
If you create a budget, not only do you set good financial goals, but it teaches you how to pay off credit card debt. When you spend money without a budget, you have no idea how much money you are spending and where. The purpose of creating a budget is to create a list of your expenses on a piece of paper and then list your all of your income on the other side of the paper. Not only does this allow you to see how much money you are spending in comparison to how much money you are earning.
This gives you a good look at how much money you are spending because without a budget, you really have no way of knowing. This is a perfect way to get yourself deep into credit card debt from which you may have difficulty getting yourself out.
Spend Less
Once you create a budget, you can learn how to pay off credit card debt by spending less money. When you get a look at where you are spending money, you can decide how much of that spending is not necessary. For example, do you have a gym membership that you are not using? If so, cancel it and put that money toward your credit card debt. If you have subscription services, decide if you really need or are using them. If not, it is time to cancel them, or perhaps reduce how often you receive them. After you make these changes, you can look at other areas where you spend money.
A good place to start is look at how much you spend eating out. I am willing to bet, it is way more than you think. You never know until you starting seeing it in black and white. If you can reduce the number of times you eat dinner during the week, you can drastically reduce the amount of money you are spending. You can reserve eating out for special occasions or only on weekends. You probably spend anywhere from $15 and up every time you go out. Over the course of a week, you can find significant savings.
Smart Credit Card Use
Today it is hard not to use credit cards, so if you are going to use them, be smart about it. Do not spend more on your credit card then you are able to pay each month. Make sure you monitor your spending so you are aware of how much you are spending. Try to learn how to organize your finances and set financial goals. It is easy to spend money that you do not have when it is not coming directly out of your bank account. When you use a credit card, make sure you pay off the credit card every month so that you do not accrue interest. If you cannot pay off your credit card each month, then you should at least pay the minimum payment so that you can avoid late fees and other penalties.
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Consider Not Using Credit Cards
While it is challenging today to get by without using credit cards because of the price of products, it can be possible. If you start saving money at an early age, you can set yourself up to save money and create a nest egg. However, even if you do not start saving money at an early age, it is never too late to begin saving money. You can create more than one savings account. You can have one to create a nest egg. You can have one for emergencies. You can have another to save for the items you want, such as a car, or furniture, or even new clothes. It takes a lot of fortitude to save the money first for the items you want, but it is entirely possible.
Conclusion
No matter what you choose about using credit cards, you should always set smart financial goals. If you ever hope to get out of or stay out of debt, you should create a budget and a plan now. It is never too late to consider your finances and get them in order. If you start using a credit card with these goals in mind, you may be able to save yourself from falling deep into credit card debt.