According to the Federal Reserve, around USD 1 trillion outstanding card debt was recorded in 2017. This number ballooned because of the consistent rise of cost-of-living and the need to borrow money. Credit cards appeared to be an easy way to borrow money, but it can be deceptively expensive.
Drowning in credit card debt is a real struggle, but when you include a limited budget in the equation it is easy to see a lost cause. Not everyone is blessed with a high-paying job or readily financial support from family. Although there is no easy way to pay off your credit card debt, there are a few approaches that will help you start living a financially fit life.
Stop creating debt
To reduce your credit card debt, you need to stop creating new one. Continually adding new debt will stress your finances even more. You need to think about long-term plans that will help you alleviate your financial stress and not short term goals that will only put a bandaid on your wounded wallet. Do not sign up for another credit card, or practically freeze your existing card. A mistake will not be corrected by another mistake.
Establish a Budget
You need to create and organize a budget. A well planned budget will help you clearly see how, where and when your money goes in every month. Examine your budget to identify unnecessary expenditures and spot any flexibility for your daily overhead.
Negotiate a Lower Interest Rate and Terms
Negotiate your interest rate by simply giving a phone call to your credit company. Discuss a new lower interest rate and new term that can help you pay more at ease. Lower interest rate means paying your debt faster and a new term can give you flexibility that you need.
You should consider a debt consolidation loan, only if you feel that you are committed to paying monthly payments and are able to save money because of a lower interest rate than the interest rate on your current debt.
A consolidation loan, is a loan that allows you to receive a lump sum of cash that can be used to pay your financial debts. It also has an interest rate, but it should be less than compared to your credit card and should be fixed.
Reduce Expenses/ Increase Your Income
Analyze your daily expenses and trim unnecessary expenses. There are many hidden costs in your regular habits, like coffee drinking, online shopping, or weekend travelling. Cutting them out will save you a significant amount of cash in the long run.
Increase your income to give you added funds for payments. You can start taking part-time jobs, work overtime or do some freelancing gigs. You can also check some of your not so useful furniture and items that can be sold in online platforms like EBay or Craigslist.
Do not miss your deadline to pay your monthly payment, at least your minimum balance. This will prevent you from incurring added interest rates and expensive late fees. Avoid paying minimum, which is less than 5% of your credit card balance due, unless you want to stay in debt for long time.
Use snowball method
Snowball method is a payment process wherein you start paying off your small credit balance first. It is a great scheme because you get to see progress in your financial status faster. As a result, you get motivated and hopeful about your situation. The more you see improvement; the better you will feel.