Get That Credit Card Monkey Off Your Back
According to the website Click4Credit, a credit card comparison website, the average interest rate on a standard credit card is now 19.5%. And the average monthly card balance is a whopping $3115.00!!
That means that Mr. Average is paying more than $600 in annual interest charges.
It’s time for action, people! Time to say NO! to that credit card debt. And below are 10 steps that you need to take to get that credit card monkey off your back. And I don’t mean next month. I mean now, damn it!!
- Assess Your Debt. Before you can confidently tackle your credit card debt you need to know what that debt is. Get all your credit card statements together and figure out how much you owe. This can be terrifying for some people but it is a very important first step and you will feel much better once you implement ways you can wipe that debt out completely.
- Create A Budget. You need to know how much you can afford to pay on your credit cards and a budget is the best place to start. This will also allow you to see where you can try and save money on other bills and then funnel those savings into paying off your credit cards that much faster.
- Stop Spending. This step is two-fold - stop using your cards, and cut back on your spending generally. You will need to tighten your belt and use all your spare cash to reduce and eliminate your credit card debt.
- Attack Your Debt. The war has started! Start paying off your cards. Work out how much you can pay back within your budget and start paying it off. Also, make micro-payments whenever you can. Have a few dollars left over from your grocery shopping? Transfer it into your credit card. You will be surprised how these little micro-payments add up over time.
- Don’t Save. Pay Off Your Cards. Concentrate on paying off your cards. Put every cent you can spare into doing this. Then after all your cards have been paid off you can start to save again. After all, paying off your cards will save your hundreds, even thousands in interest - so it is saving you money in the long term.
Who Should You Pay First?
If you have more than one credit card then you will need to figure out which card to pay off first. Focus on one card at a time and then move on to the next. This will give you a satisfaction boost when you pay off the first one and drive you to do the same with the rest.
But which one first? There are two schools of thought on this. The first, and more traditional, is to choose the card with the highest interest rate and pay that off first. But this may not always be the most sound financial decision.
If you owed $2000 on a card at 12.35% and only $400 on a card at 19.5% you would be better off financially to pay off the fist card (at least until the balance dropped to an amount similar to the second card) as the interest charges on the first would be higher than on the second card.
The second school of thought is to choose the card with the lowest balance and pay that one off first. Why? Because it is easier and will be quicker for you to do so and will give you a much-needed psychological boost when you pay it off completely. Something you may need to keep going with the other cards.
It really depends on how much you owe and what your personality is like, but my recommendation is to just pick a card, any card and focus on getting it to a zero balance.
Another quick tip: As you pay off a credit card, get the limit reduced as you go. This will stop you from being tempted to over-spend on it again.
Balance Transfers
These are great if you use them correctly and read the fine print so you understand exactly how they work. For example, some banks will give you a 0% balance transfer rate but as soon as you use the card this rate jumps to the normal rate of the card, which could be around 20%. So be careful and make sure you totally understand what you can and cannot do.
Oh, and make sure you can pay the balance off within the time stipulated. If the balance transfer is for 12 months only, then make sure you can pay the transfer amount out within 12 months. Otherwise you might find that the balance is now at the card’s standard interest rate, and you are back at square one again.
Get Rid Of Your Cards
If you think you will be tempted to use your credit cards (and that’s probably most of us) don’t take the cards with you. Here are three things to do with your cards:
- Cut them up! This is a great way to stop you using them.
- Leave them at home. If you think you will be tempted to use them while out and about - don’t take them with you.
- Give them to a trusted friend or family member. If you know someone you can trust, give your cards to them. That way you will have access to them in an emergency but won’t be able to use them when you are tempted.
One last word of advice. If you are completely overwhelmed and have no real way of paying off your debt then you need to see a professional financial councillor. These are usually available free in each state.
Have you started paying off your credit card debt?
Image credit: lemonjenny
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