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Carrying high credit card balances month after month puts your finances in a precarious position. All it takes is one brief dip in income to cause the entire house of cards to tumble and fall. Even knowing this, getting out from under all that debt is quite challenging. Especially when faced with high interest rates. Thankfully, you can use this guide to learn how to pay off credit card debt and regain control of your finances. Here’s what you need to know.
You cannot dig yourself out of debt without first halting all use of your credit cards. When you continue to add to your balances, it’s nearly impossible to pay it all down in a reasonable amount of time.
If you’ve become reliant on your cards to get by, create a strict monthly budget to figure out how to pay your expenses without credit. Besides your recurring bills, remember to add sporadic expenses. Like clothing, school supplies, and vehicle repairs. Plus, don’t forget to budget in fun money to help boost morale and make it easier to stick to your plan.
Besides halting your credit card usage, look at how much time it would take to pay off your credit cards while only making the minimum payment. On a credit card with a 21 percent interest rate, a $5,000 balance could take over 30 years to pay off while paying the bare minimum. Furthermore, it would add over $20,000 to the bill in finance charges alone. With that insight, it’s clear that a rapid payoff plan is the way to go.
To get started, you will need to pick a card to pay off first. You can work from largest balances to smallest to keep total interest paid to a minimum. Or start with the smallest card and work in the opposite direction for a motivation boost with each one you pay off. There’s no right answer in how you pay off your cards since it’s just a matter of personal preference.
Once you figure out which card to pay off first, look at your finances to see how much extra you can throw at it. You’ll want to cover at least the minimum payment, interest, and fees to make a dent in the balance. Plan to put any surplus payments toward the balance as well to get your credit card debt under control fast. Also, keep paying the minimum on all your other cards to avoid default and continue chipping away at their balances.
After you pay off your first card, add the total amount you were paying each month to the minimum for the next card. If you were paying $200 a month toward your first card and a minimum of $50 on the next one, then your new monthly payment is $250. Continue in this manner as you pay off each card to get the repayment process rolling along at a rapid clip.
Even as rolling up your payments increase your momentum, eliminating credit card debt can feel like it takes forever. The debt you may have racked up across several months can take years to pay back. As the credit card companies keep piling interest onto your balance. If it just feels like it’s taking too long, consider these options to speed up the process even more.
Tally is a helpful app that allows you to manage your credit cards as you work on paying down the balances. You can choose between their Express and Essential plans to customize your journey.
Each plan gives you the ability to see all your cards in one location, set up automated payments, and follow custom payoff plans. With the Express plan, you can also get a low-interest line of credit and protection from late fees. It only takes about two minutes to get started and offers true peace of mind once you are all set up.
Do you have cards with rather high interest rates? If so, you can speed up their repayment by transferring the balance to a card with a lower rate. This is especially helpful if you can transfer to a card offering zero interest if the balance is paid off in a set amount of time. Just keep in mind that if you do not pay off the card by the time limit, the company will put the full interest amount on the balance.
If you get a fixed personal loan, you can pay off all your credit cards with the funds and get a static repayment plan with a lower interest rate. This allows you to pay off your debt faster and without the risk of getting hit with higher interest payments as you go. You can also kiss the stress goodbye since there’s only one payment to cover each month.
A debt consolidation company can also help reduce the stress of paying off your credit card debt. They will take charge in creating a repayment plan that works for your income. Then, they will support you every step of the way. If anything about your financial situation changes along the way, they will help you make smart adjustments that keep you on track to paying off your debt.
Once you pay off your last credit card, you can redirect your funds to savings, retirement accounts, and the like. By doing so, you can protect yourself from falling into a similar credit card debt trap in the future.
Aim to have at least $1,000 in an emergency fund to start, so you don’t have to rack up debt if anything goes awry. If you’re a homeowner, also put aside about one percent of your property value for maintenance, repairs, and upgrades. With no debt and a small emergency fund built up, keep adding to your cushion until you have six months of expenses put aside for emergencies. Then, you can just add to your preferred savings and investment accounts.
Whatever you do, aim to never maintain rolling credit card balances month after month. If you use your cards at all, only spend what you have in the bank and pay off their balances in full at the end of each month.