It does not take much to go into debt-an unexpected medical bill, a new child, a job loss- many expected and unexpected events in our lives have the capacity to alter our lives and our bank balance. The average American household credit card debt is $15,067. If these debts aren’t paid off quickly, the resulting interest rates and lack of opportunities due to a bad credit score can become overwhelming. The key is to find ways to pay off debt in a timely manner.
Create a budget- and stick to it for the long term
The first thing you should do is determine a budget. Every individual or household can find ways to shave some spending off their weekly or monthly spending. First, be aware of where your money is going. Create your own Excel spreadsheet or use a personal finance app; for example, Mint.com, Dollarbird or Budget Ease for your monthly income and spending. Look for areas where you can cut down. Some are fairly obvious-making coffee at home and skipping that daily latte at $3 a pop will save you over $600 a year. You may need to cancel rarely used services such as a gym subscription. Find ways to substitute- use your local library’s e-book loans instead of buying new books from Amazon. Expenses that seem small can add up to a lot over time. Make sure it is a realistic budget- if it is too draconian, you will be less likely to stick to it. Think about what you can do for the long term and what you are unlikely to give up for long. If you are a smoker and you suddenly give up cigarettes, you may save money in the short term; however, it is likely that you will go back smoking. If you love eating out, don’t cut it out completely but makes some lifestyle changes you can stick to. For example, eat out once a week instead of three times and try lunch or the early-bird special instead of the more expensive dinners. Order appetizers only or share an entrée and skip the pricy drinks. There are many ways to do what you really love if you can make some small, necessary changes.
Target the most expensive debt first- and pay more than the minimum on the other cards
Look at the interest rates of your credit cards and arrange them from highest to lowest. Start paying off the card with the highest rate first while making payments on your other cards. Try to pay more than the minimum on all your cards. The longer it takes you to repay your debt, the more interest the credit card companies make. If your minimum payment is $90, try to double it to $180. If you have cut down on expenses in your budget, there should be some money to make bigger payments on your credit cards. This will save you anywhere from hundreds to thousands on your credit card payments.
Use balance transfers to snowball your payments
Moving a debit card to a card offering a zero-interest balance transfer is one way to save and pay. Make sure it’s a card you can pay in full in the interest free period. If the debt is too big to put it on one low-interest card, pay the minimum due on all your cards except for one. Put the majority of your debt repayments into that card and pay it off as quickly as you can. When that balance hits zero, do the same to the next card.
This is a practice called “snowballing.” As your debts go down, the amount of money you have to pay them goes up.
Another method is to move a high-interest debt to a low-interest card to benefit from many of the promotional offers banks use to convince you to use their credit line. – Moving from 18% interest to 5.9% could save you money which could be used to paying off the principal, which will help pay down the debt even more.
No more credit card spending
While you are paying off credit cards, stop using them. Take out your shopping budget in cash and don’t bring the cards with you. Or use a debit card for your spending budget and only use that. A never-ending spiral of credit card use and further payments only brings you deeper into debt and the resulting interest charged, adding to the total.
Sell unnecessary items
Got any items you’ve never used stashed in closets or the attic? Go around the house and take inventory on household items you don’t use, have duplicates of, or can live without. Sign up on eBay and use Craigslist to sell these items. Do your homework and advertise for a reasonable, competitive price. Market your items- take good pictures and write an interesting, attractive description. Put any money from these sales towards your debt.
Treat yourself for goals accomplished
When you reach a goal, give yourself a small reward. For example, if you meet your credit card payment goals, treat yourselves to a night out or something small you’ve had your eye on. Don’t blow the budget, but allow yourself something fun. This way, instead of looking at paying off your debt as a punishment, you will have some motivation to get each reward.
Paying off debts isn’t easy and requires persistence, will power and a long-term outlook. However, if you use some of these strategies, it may not take as long as you originally thought and may be a little easier to do.