Credit cards are easy to use, handy for emergencies and the instant gratification they provide feels so good. However, they can also drive you into bankruptcy and are designed specifically to keep you in debt.
If ever there existed a double-edged sword, credit cards are the poster children.
What’s more, studies have found the vast majority of Americans are in debt. Granted, that includes mortgages, car loans, student loans and medical bills. But credit cards can be particularly difficult to pay off compared to the others.
With that in mind, here’s how to annihilate your credit card debt.
Stop Using Them
The first step is to start paying cash for all purchases. If you can’t afford to pay cash, save for the item until you can. If you can’t save enough to purchase the item, then you can’t afford it. The sooner you come to grips with this realization, the sooner you’ll be on your way to a debt-free life.
Evaluate Your Situation
Make a list of all of your monthly expenses, including payments for utilities, fuel, food and the like. Now compare that to how much you make each month after taxes. The difference between what you make and what you owe is what you have to work with to pay off your obligations.
Next, look for places you can cut back your spending. Don’t eat out so often. Don’t buy new clothes so thoughtlessly. Cut cable TV and landline phones. Go with cell phones and streaming video. Let your home be a bit warmer in summer and cooler in winter—do everything you can to free up additional cash.
Conducting his evaluation will also help you see how much you owe on your cards. Pay particular attention to the outstanding balance(s), interest rate(s), the amount(s) of the minimum payments and how long it will take to pay them off the way you’re currently paying. Clarity Money’s credit card payoff calculator can help you get a good handle on this last bit of information
Employ the Debt Snowball Method
Once you’ve figured out where you are with each card and how much extra cash you have to put toward paying them off, you can put a plan into play.
With the debt snowball method, you’ll pool all of the money you’ve been paying on your credit cards each month and add the amount you’ve freed up from cutting back to that stockpile. Then, instead of dividing the payments evenly between all of the cards, make just over the minimum payments on the ones with the highest balances and put the rest of the money toward paying off the card with the lowest balance.
This will help you pay it off faster.
Once it is, you’ll then take the money you were putting toward that card and combine it with the payment you were making on the card with the next lowest balance and treat it in the same fashion. Continue escalating your payments in this fashion until you’ve finally paid off the card with the highest balance too.
Conversely, you can attack the card with the highest interest rate first or prioritize the card with the highest balance. Either way, you’ll eliminate the total debt a lot sooner because you’re paying more on it each month. Starting with the lowest balance first will give you a sense of accomplishment sooner, which will help you keep up the momentum. However, that strategy might also work out to be more expensive in the long run—depending upon your situation.
The main thing is to put some form of this plan in place and work it. Also, as you pay cards off, cut them up, but don’t close the accounts. You want to stop using them so you don’t backfill debt as you eliminate it—but you also want to keep your credit score as high as possible. Closing accounts can reduce your score.
So, there you have it; if you really want to annihilate your credit card debt, this will work. How long it takes depends upon how much you owe and how much you have to put toward it. But it will certainly be faster than dividing payments evenly between all of the cards.
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Founder Dinis Guarda
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