Are you worried about your credit card debt? Well, this will not make the problem go away, but you should know you're not alone. Recent statistics have showed that Americans owed $1 trillion in credit card debt at the start of the year. In the first quarter of this year, $38.2 billion was repaid but it will still be offset by a projected $70 billion increase in debt by the end of the year. The only way to get out of this debt is to acquire new habits, and these can be broken into 5 effective steps you can start taking today.
1. Break down your credit card debt into chunks
Tackling a huge problem head-on is extremely difficult and that is why the divide and conquer approach is usually used. The military use it all the time when they want to take over, say, a town, by dispersing troops to specific targets rather than taking the entire town at once. Not only that, but it also provides a sense of accomplishment when tasks are broken down into parts instead of waiting for the final result.
Suppose you owe $20,000 in credit card debt. Thinking about the entire amount can be very intimidating because it's a huge amount. However, once you break the entire debt into chunks, it starts to seem more manageable and achievable. If you have several credit cards that all have debt, you can think of these as completely separate and pay them off individually. Even if you owe all the debt on a single credit card, you still ought to break it down into chunks of, say, $5,000.
Once you pay off one credit card or one chunk as you have divided, you will immediately get a sense of achievement that should motivate you to keep going. Not to mention, even the lenders appreciate anyone who makes an effort to pay off their debt rather than dodging it. As long as you are making the minimum required payments, you can be assured there won't be additional charges that would increase the debt.
2. Start with the credit card with the highest interest rate
This applies to someone who has several credit cards from lenders with different interest rates. That credit card with the highest interest is the one you should start with because it is costing you the most when interest is calculated relative to the principal balance. Obviously, this means that it is expensive to keep paying the debt at such a high interest; money that would be used to pay off other debt, loans or take care of the bills.
Just remember that interest will always be charged as long as the principal is not repaid, so focus on clearing the principal balance as well as the interest in order to completely pay off the debt. Once you're through with the one with the highest interest, move on to the second highest and so on.
3. Clear smaller debts first
Imagine if your debt of $20,000 comprised of $5,000 from one lender and $15,000 from another. Do not treat both of these debts equal even though you need to pay them both of. The idea is to take any small wins you can get first, so start by clearing the $5,000 debt. When you are finally done with this debt, you will feel motivated psychologically to handle a bigger challenge. However, that is not to say you should ignore the other debt as you still have to pay the required minimums on all debt just to avoid any penalties.
4. Apply for a 0% APR credit card
Many credit card providers will give their clients a 6 to 24 month grace period during which they won't be charged any interest. Take advantage of these offers to transfer your debt from one credit card to another that doesn't charge interest. By doing this you get to improve your credit rating and once the grace period is over your APR will be lower due to your now improved credit score.
5. Consolidate all your credit card debt
You can also apply for a personal loan that will act as the credit card consolidation loan at a reduced interest rate and longer repayment term. For example, instead of paying off $20,000 in credit card debt at, say, 18% interest, it is also possible to get a personal loan for the amount that would be charged 7% interest over a 3-year period. That should save you a lot of money and help you get out of debt faster.
That's it! Now you're ready to get out of that credit card debt that has been getting you down.
