For many people, the very mention of “credit card debt” is enough to raise their blood pressure. Fear of debt is the reason many people avoid getting a credit card altogether. Credit cards have their advantages and leveraging debt can be a good thing if it’s done right. However, there is a point where your credit card spending exceeds your ability to repay, leaving you struggling even to repay the monthly interest on your credit cards. It’s at this point that you find yourself in an unhealthy financial situation that can lead to additional stress and pressure on your budget.
If you have ever had credit card debt, you know that no one intentionally puts themselves in an adverse position with regards to credit card debt. Sometimes, it just gets out of your control. Maybe you had medical bills or unplanned costs come up. You might have lost your job and got behind on credit card payments. No matter the cause of your debt, there are so many reasons you’ll want to build an effective strategy to pay it off.
Paying off your debt can release stress and improve your mental health, help you build up your savings, and improve your credit score drastically. So, if you’ve realized you need to start paying off your credit card debt, we have some tips to help you. Here are our top five tips for the best ways to pay off credit card debt.
Revisit your budget
If you find yourself struggling to pay off a continuously increasing credit card balance, first revisit your budget. It may be that you’ve strayed away from the budget you set for yourself, and you need to go back to the basics. There may be an area (or a few) where the spending has gotten out of hand. It can be easy, especially with credit cards, to gather debt by making smaller purchases over time and not realizing how much you’re spending.
By taking another look at your budget, you can work to identify areas where you’re over your spending limits. This is a great way to help keep yourself from continuing any ongoing patterns of overspending and could highlight categories where you need to cut back.
The process of revisiting your budget can help you start digging yourself out of credit card debt but, most importantly, can help you prevent overspending. Preventing the problem is always better than trying to fix it after it has already happened! Plus, the more money you can save each month, the more you have available to pay off debt that could arise from any unplanned expenses.
Change your credit card usage
If you’re starting to get overwhelmed by your credit card debt, you likely need to adjust the way you use the card. The kind of adjustment depends on how much debt you need to repay.
The first major, helpful, adjustment you can make is to completely stop spending with your credit card, to get control over the problem. To help, you can revert to only using cash for your spending, which will raise your awareness of just how much you are spending. So maybe instead of using your credit card for everything you buy during the week, you leave yourself a certain amount of cash in your wallet. Go through the week only using the cash and see if you can make it last all week. Trying this cash only method for just a week will help you view your spending habits in a new light.
The second helpful adjustment you can make is to just use the credit card less than usual. It will be easier to work on paying the debt if you’re not continually charging more onto the card. If you’ve gotten into the habit of using your credit card more than you should, it’s time to work on this. The goal is to get to a good place of spending that you can afford comfortably. Start with a few categories you want to reduce and set a few targets to reduce spending below what the monthly payments are to bring the spending under control.
Lastly, the adjustment required may just be revisiting the prior recommendation and revisiting your budget. This is especially the case if you can catch the potential issues early. By looking more closely at your budget, you’ll begin to see where you are spending too much without realizing it. Now you can make the necessary changes to your spending, open more room to pay off your credit card, and create better spending habits.
Try a payment strategy
One of the best ways to pay off credit card debt is to use a payment strategy, especially for those that have a substantial amount of debt to get through. There are several popular payment strategies to choose from. A simple one, if you can afford it, is to make more than one payment per month. If you have enough money to make multiple payments, you’ll be able to pay off your credit card faster. This method will work well if you get paid twice per month, because it will give you the opportunity to set aside some of your earnings to make payments each time you get paid.
A very popular payment strategy is the avalanche method. Using this strategy, you will organize all your minimum payments (not including mortgage) from highest interest rates to lowest interest rates. Then you’ll start by paying the payment with the highest interest rate first. The goal of the avalanche method is to minimize the amount of interest you have to pay on each payment, which will save you money in the long run. For example, say you have a $1,000 credit card balance at 18.3% interest, and another balance of $3,000 at 14.5%. Using the avalanche method, you will pay the $1,000 balance first since it has the higher interest rate of the two.
If you would rather work on your debt in a way that can give you some quick wins, the snowball method may be better for you. For the snowball method, you start by paying off your smallest payment first and work your way up to the bigger amounts. This method allows you to achieve smaller milestones first, which will motivate you to keep going. Once you have the first payment knocked out and you direct your money toward the next smallest amount to pay, you’ve gained some momentum. The snowball method is very popular among people who want to be motivated by the progress they’re making.
Whichever method you choose, make sure it works for you. The most effective method will be the one you can fully commit to and keep going until you’ve paid off the debt!
Use your local bank’s resources
When you’re trying to figure out the best way to pay off credit card debt, sometimes you just need a helpful tool or advisor to help with the planning process. There are many calculators out there that can help you decide what you need to do. Check your local bank’s website to see if they have some resources you can use.
Here at Hickory Point Bank, we have several great resources on our calculators page. Under “Credit Cards and Debt Management” you have access to a few payment calculators. One will show you exactly how you can accelerate your debt payoff. Another will calculate what your payment should be depending on how long you want to be paying off the debt. With all of these calculators, you can tweak the numbers until you find the best option for you. We hope these tools will be helpful in your journey to debt freedom.
Consolidate your debt
If you are struggling with several high-interest balances, finding a way to consolidate your debt may be a great option. One method is to get a 0% interest balance transfer credit card. Getting yet another credit card may sound odd, but this type of card will allow you to transfer all of your debt onto one account. Then you’ll only be in charge of paying one payment each month, with no interest. At Hickory Point Bank we offer a 0% interest balance transfer credit card, so if you’re interested in this option, come see us at your local branch to get started.
Another method is consolidating your debt by using a home equity line of credit. This can be a useful option if you have a significant amount of equity in your home. A home equity line of credit will typically have a lower interest rate than credit cards, so it’s also an attractive option. You can find more information about what Hickory Point Bank offers (and even apply) here. As with each of these options, make sure that you’re choosing the option that allows you to pay off your debt in the way that makes sense for you.
If you’re on the journey of paying off credit card debt, we hope you’ve found these tips helpful. At Hickory Point Bank, we strive to make it easy to access high-quality banking services and useful financial information. We want to help you succeed, so make sure to check out our payment calculators that you can access anytime! If you’re in Central Illinois, come visit one of our local branches for any and all of your banking needs.
Resources
MoneyGeek: How Debt and Financial Stress Affect Your Mental Health and Ways to Cope
Hickory Point Bank: Payment Calculators
Hickory Point Bank: Home Equity Loans