It’s tempting to just pay the minimum your charge card demands, but’s the way to escape the black hole of credit card debt very quickly.
So that you spent a bit too a lot of about take-out this past month – or perhaps you went a bit overboard at the sale in HomeGoods. Whatever it was that made you whip your card out and invest more than you need to have, the issue remains: You finally have credit card credit card.
Like me, you might be tempted to create only the minimum payments that your credit card demands, but since you’ve likely discovered, that is not actually the ideal program. Why?
Two Reasons to Pay More Than the Minimum
Reason No. 1: Credit card interest would be the worst. The average credit card interest rate is north of 15 percent, and adding your debt after month increases so fast. Bottom line: You won’t be chipping away at your debt if you’re only making the minimum payments.
Reason No. 2: Your credit card balance may be dragging down your credit score. Your debt load compared to credit available is a big factor when it comes to calculating your credit score. Dumping that debt so that your credit utilization is lower can only mean good things for your credit.
Here’s what you can do to escape the black hole of credit card debt:
Target One Card at a Time
The before all else step to getting out of credit card debt is to tackle one card at a time. You can do this one of two ways: The avalanche method or the snowball method.
Using the avalanche method, you check to see which card has the highest interest rate and you focus on paying that debt before all else, while also making minimum payments on your other cards.
Or you can go for the smallest balance before all else while also continuing to make minimum payments on your other cards, which is called the snowball method. This may not be the most cost-effective way to obtain out of debt, but those small victories can do wonders for your motivation to keep chipping away at your debt.
Consider a Balance Transfer
If you need some breathing room so you can pay down your debt without having to worry about interest piling up for a few months, you should consider a balance transfer.
A balance transfer lets you move credit card debt from one card to another. The goal is that the card receiving the balance would have a lower interest rate – ideally 0% – and you’d pay off the balance before that no-interest period ends (which is usually anywhere from six to 18 months). Ideally you would pay off your debt balance before you lose that low interest rate, which will obtain you out of debt faster because your payments are no longer also going toward interest – every penny is headed straight to reducing your debt.
Reevaluate Your Budget
The harsh reality is: You’re going to need to reassess your spending habits to free up some money to put toward your debts, and as your friends we’ll tell you the harsh truth: That may mean no more weekly manicure or daily stops to graze the aisles of Target.
Go purchase a fancy journal and maybe some gel pens while you’re at it (can you tell I’m a ’90s baby?) . Take said fancy journal and categorize your monthly spending for things like groceries, transportation, rent, entertainment, etc.. Look for areas where you could cut back (re: your daily Starbucks run). Maybe you see you spend a little too a lot of on Uber, or maybe you realize you should start packing your lunch instead of purchasing it everyday. Whatever money you start to free up, put that toward your debts.
With your great budgeting skills and drive to succeed, your credit card debt will be erased in no time.