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Are you ready to ditch your credit card debt? Are your credit card balances are sitting beyond your comfort level? Here are some practical tips to making some headway to clearing your credit card debt quickly.
1. Set a goal
This the easiest step in the process but it’s extremely important. Your goal may simply be to ‘clear your credit card debt’. However, it is important to quantify your financial goal with a figure.
Make a list of the credit cards you have and the debt on each one. Then add them up for the total balance. This is your overall goal. Some of you may be facing large amounts of debt over multiple cards.
The figure may scare the crap out of you; that’s a good thing. If it did, you probably just got the reality check you needed.
Now you can deal with your situation.
Regardless of whether you are facing a debt mountain or a molehill, it’s often easier to break a goal into manageable chunks. Focus on the smaller steps rather than the entire journey. There’s only one way to eat an elephant and that’s piece by piece!
But first, you’re going to make a commitment to putting your cards somewhere where you won’t use them.
2. Put your cards away
If you want to clear your credit card debt fast you’re going to have to stop using your cards. I know it’s pretty easy to turn to your credit card when you’re in a shop with no money. If you don’t take your card out you can’t use it. Leaving it at home intentionally places time and energy between you and a purchasing decision when you consider going home to get it. This should give you a much-needed cool off period to remind yourself of your situation.
Some of these situations will be easier than others.
For example, if you’re at work and you forgot to bring a lunch with you from home (a fantastic way to save money). In the norm, if you didn’t have enough cash to buy lunch you’d turn to your card, wouldn’t you? Since you left your card at home you probably won’t go to the effort of a journey all the way home. And if you did, you may as well grab lunch there.
Bigger purchases may require more determined thinking. If you aren’t disciplined enough then make your credit cards harder to get too.
Let’s say you’re a spendaholic and have a weakness for shoes. You may buckle at a quick drive home from the shop to grab your card to secure that $500 pair of shoes that came on sale.
Storing your credit card in a more difficult place will buy you that time. Ideas for putting your credit card in a difficult place could be:
- a tub full of ice in your freezer
- a locked box buried in a secure location (requiring a half hour of digging to get to it)
- a trusted friend or relatives house
You need the card in a place where you are less likely to go to the effort to get it, but would in an emergency.
Attaching a short letter to the card can serve as a reminder of your resolve to get out of debt. You need to force enough time for the emotional purchase behaviour to subside and remind yourself of the reasons why you are doing this.
The ultimate resolve would be to cut your cards up. If you think you can do this, do it. If you believe you don’t have the discipline to keep away from your credit cards, then do it!
However, it’s always good to keep a card or two to hand for definite emergencies. For example, to cover a medical bill.
3. Prioritize your debt
Remember that list of credit card debt you made in step 1? You’re now going to prioritize that list. You can approach it in the way the debt snowball method works or in the way that debt stacking works.
To show you an example of how each method works. Let’s say you have a list of credit card debt that looks like this:
- ABC Credit Card $100 11%
- Vampire Debt Credit Card $2000 24%
- Scary Credit Card $400 19%
- XYZ Credit Card $11,000 19%
The debt stack method would have you placing a list of all your debts in order of interest rates. So, you itemise what your interest rate is and you put them in order of highest interest rate to lowest. Your list will end up looking like this:
- Vampire Debt Credit Card $2000 24%
- Scary Credit Card $400 19%
- XYZ Credit Card $11,000 19%
- ABC Credit Card $100 11%
The technique will see you paying off the credit card debt that is costing you the most each month. The debt stack method helps save you on interest paid each month, reducing the amount credit card interest you’ll pay in total. You can read more about the debt snowball here.
The debt snowball method works a little differently. This will see you placing your credit card debt in order of highest debt first, irrespective of the interest rate. Here is what your list would look like:
- ABC Credit Card $100 11%
- Scary Credit Card $400 19%
- Vampire Debt Credit Card $2000 24%
- XYZ Credit Card $11,000 19%
The debt snowball technique hinges on psychology. It doesn’t attend to the most costly debt first. It clears the smaller debts first. This reduces the number of credit card companies you hold a debt with faster. Seeing debts get knocked off the list faster is incredibly motivating to some and instills the impetus to keep at it.
If you can pay off debt by $500 a month you’ll instantly pay off two credit cards in your first month. It’s a great feeling to do that. Debt can feel like less of a mountain and is more manageable when it’s with fewer companies. This is also one of the benefits of a debt consolidation loan.
4. Reduce your expenses
The fastest way to find extra money to pay off credit card debt is to reduce your expenses. To do this effectively you’ll want to create a budget. Setting up a budget is a lot easier than you think. I even give you a free budget spreadsheet template if you sign up to my mailing list.
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A budget helps you track your spending. As you see where your money is going, you’ll be able to make decisions about where you can cut your expenses. This will free up some extra cash to get that credit card debt paid off quicker.
I strongly recommend you read the following articles:
- What is a budget plan?
- How to make a budget planner
- 7 steps to budgeting like a rockstar
5. Create a spending plan
Creating a spending plan will help you live within your means. One of the benefits of creating a budget is that you will see whether you are spending more than you earn.
If you sign up to my mailing list the budget spreadsheet template I share contains a budget sheet and cash flow budget spreadsheet.
Most people run a budget on a monthly basis and therefore keep a monthly spending plan.
My budget sheet contains weekly, fortnight and monthly amounts. I break my budget cash flow spreadsheet into weekly columns. This makes it easier to track expenses. I spend a short amount of time each week entering in my expenses. That said, it’s great to have a fortnightly and monthly overview of your expenses, and yes, my budget spreadsheet does that for you.
6. Start paying off your credit card debt
I showed you to approaches to paying off credit card debt in step 3. Now is a good time to pick the best approach for you.
In both methods, you’ll end up paying the minimum balance on all the credit cards. You can’t ignore that. Both approaches require you to pay every bit of available funds to the debt at the top of the list.
If you are looking for a different approach to paying off a credit card you can check out my counter-intuitive method. I only recommend this when you get down to one card, though.
Whether you choose the debt snowball or debt stacking method is entirely up to you. If you find one isn’t working then feel free to switch. It’s really important to find a method that works for you and one that you are going to stick too.
7. Using savings to pay off credit card debt
If you have a savings account you should seriously consider using this to pay off your credit card debt.
It’s advisable if you don’t have one already, to keep an emergency fund available. Any savings over and above an emergency fund would be better put to use on high-interest debt. You can read my post discussing this subject here.
The interest you will be paying on a credit card will likely be substantially higher than what you will be earning on a savings account. You will save yourself a lot of money on interest payments by using those funds.
You may also be able to opt out of government incentivised savings schemes for a period of time to help you pay off a debt. Consider also using any income tax savings or refunds to pay off your credit card debt too.
Once you’ve paid off your credit card debt you should maintain your resolve to pay back the money you used from your savings account.
8. Consider a debt consolidation loan
Debt consolidation loans or bank transfers can be an excellent way to get out of debt. A low-interest credit card balance transfer can be one of the best options too.
Make enquiries with your credit card provider to arrange a no interest, or low-interest balance transfer. I have often shopped around in this way and have found I can get 12 months on 0% easily. Make sure you do the math carefully, though. Some companies charge you a transfer fee.
If you have a balance on a card you want to transfer to ensure you pay it off first. If you don’t payments you make to the balance may service the 0% balance first. Check the terms and conditions carefully to see how your credit card provider handles this.
A debt consolidation loan charges you a fair amount of interest in most cases. They have the advantage of accumulating your debts into one place and working out a repayment plan you can cope with.
If you choose either of these options you would be wise to cut up or cancel any credit cards you pay off with the loan so you aren’t tempted to keep using them.
It’s often the case that people don’t change their behaviour when consolidating a debt. When you experience “the journey” of paying down a debt you build better financial habits that prevent you from going down the same road again.
It’s not the achievement of the goal that’s important, it’s the journey and how it changes you.
9. Refinancing a mortgage
Taking a balance off your mortgage is often the best way to find low-interest funds if you have enough equity in your property.
You should budget your money to pay off amounts used from your mortgage to navigate back to a good financial position as soon as possible.
Be careful though! Using your home as a cash machine is a road to financial destruction.
10. Find alternate sources of income
Looking for additional ways to make money is a good option for helping to pay off a credit card debt. The most logical option is to find a second job but this is not an option for some people. There are a number of ways to boost your income examples include babysitting, pet sitting or house sitting. You could advertise a room in your home on Airbnb. You simply need to think outside of the box.
Many people are also turning to blogging as a way to earn extra income online. Since this blog started in January I have pulled in about $1000 of extra income.
There are many bloggers out there that are earning far more than that. Some are earning upwards of 6 figures a month!
I’m documenting my journey through this blog as I attempt to hit the same figures. There’s another reason for you to sign up to my mailing list and follow along! If you follow along you can take the tips and tricks I share with you in my monthly income and traffic reports to replicate on your own blog.
It’s really easy to set up your own blog, and a lot cheaper than you think. You can get started from as little as $3.95 a month. Here’s a post that’ll explain how to get started.
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