When you fall behind on your credit card debt it can feel overwhelming.
Just trying to get by and make all your payments on time can be hard work, and when you have high balances those minimum payments sometimes cover little more than the interest you accrue every month so you keep paying but the debts aren’t shrinking.
While there is, unfortunately, no easy way to take your high personal debts and pay them off in short order, there are ways to approach your debt reduction to best position yourself for success. Here’s everything you need to know to address your credit card debts responsibly and progress toward a debt-free life.
How To Get Your Credit Card Debt Under Control
1. Make An Honest Assessment
Before you can devise a plan for managing your credit card you need to have a realistic understanding of what your current situation is. Take the time to gather information on every open credit account you have, including the amount of debt, the interest you owe and your current monthly payments.
Getting a credit report is also an excellent way to get an assessment of your current credit situation. In addition to the law offering a free credit report, there are many apps and web sites which offer free tracking of your credit so you can monitor the positive effects your financial changes are having on your credit score.
2. Note Your Essentials
Once you know the extent of your current credit card debt you can begin planning to start paying it off. Before you can allocate money to paying down your debt, however, you need to know how much additional spending you have in your budget.
The first step in budgeting is to determine how much money you have to spend strictly on payments which must be made every month. This includes your housing costs, utilities and minimum payments on every line of credit. Additional mandatory costs include basic food costs, any gas or other expenses for work and any other essential spending.
3. Prioritize Your Budget
With your mandatory spending assessed it’s time to look at your optional spending. Working toward paying down your debts doesn’t mean you have to entirely abstain from any spending on things you don’t need to have but still want to, but you should look to begin tightening the belt.
Make a note of everything you spend money on which is not mandatory spending and look for areas that you can stop spending or can reduce the amount of money which is being devoted to a certain activity. Make note of which of your recreational spending is most important to you and which you think you are better positioned to begin reducing funds for.
4. Limit Your Indulgences
Finding areas to cut spending is the best way to allocate more money to pay off your credit cards. While it’s important to still maintain some personal indulgences in life for the sake of your emotional well-being, by using the prioritized list of spending you created you can reduce how much is being spent on wants instead of needs.
Every dollar that is saved from cutting back on or abstaining from an activity which was eating up an outsized portion of your budget is another dollar you can devote paying off your credit cards and getting your debt levels under control.
5. Pay Beyond Your Minimums
There may be no single element in the field of credit that trips up as many people like the credit card minimum payment. While it’s easy to think that as long as you’re making your payments you’re doing fine this is the way to find yourself on the credit card treadmill.
While minimum payments can work in the short term, and you should always make them because a record of made payments is key to a strong credit score, if you want to pay off your debts it’s important to go above your minimums. As your debt increases, minimum payments are not enough to counter the interest you are taking on, so you can end up paying for each dollar on your credit cards many times over by the point you’ve finally paid it off.
6. Focus On Your Highest Interest Accounts
When it comes to getting your credit under control your number one enemy is interest. Every month as your payments bring your debt down, the interest creeps it back up. Because interest is actively working against you, the key is to minimize the effect it can have every month.
That means your first priority is making your minimum on every card to stay in good standing, but for any money allocated to paying your cards beyond your minimums, you should focus on paying off the card with the highest interest rate.
While the difference of taking $100 off a card with 10-percent interest instead of one with 8-percent interest may seem like a small thing, over time and with larger rate disparities it can add up to significant savings on the interest, which means paying off your cards earlier.
7. Utilize A Tracking App
The good news for anyone with high credit card debts is that there are many great tools for managing credit which allow you to make the process as efficient and effective as possible. In addition to credit management apps which help you stay on top of your credit score, budget tracking apps can help you see exactly how your budget is being allocated. This additional assistance makes it easier to develop a plan and then stick to it.
Paying off large credit card debts is not a journey many people can complete quickly. It takes a careful plan and the discipline to stick to it. If you follow this road map, however, you can start on your way out from your overwhelming credit cards.