Home Debt 15 Tips On How To Get Out of Credit Card Debt Quickly

15 Tips On How To Get Out of Credit Card Debt Quickly

by Dale Thompson
Tips for Climbing Out of Debt and Paying Off Your Credit Cards | MoneyVanguard

Know that you’re not alone in your quest to pay off your credit card debt. In the United States, the average household owes over $15,000 on credit cards. From deciding on the optimal payment method to contacting creditors to negotiate rates, success necessitates a hands-on approach. Here’s how to get out of credit card debt quickly in 15 easy steps.

1. Evaluate Your Finances

Assessing your financial status is a smart first step in getting out of credit card debt.

Make a list of everything you owe, including credit card debt and any regular monthly expenses. The balance on each credit card, as well as the annual percentage rate (APR), or the cost of borrowing money, should be included in this evaluation of your entire debt.

You may determine how to tackle debt reduction by looking at each card’s balance and APR. To save money on interest charges, you may wish to tackle debt with the highest interest rates first; in other situations, you may want to give yourself a psychological advantage by paying off lower-balance cards first.

Comparing your debt and spending to your income is the next step. Rent or mortgage debt, credit card balances, loan debt, and grocery expenditures should all be considered.

Take into account your pay, the interest gained on your investments, and everything else that creates money when calculating your income.

2. Consider Nonprofit Credit Counseling and Financial Assistance

There are a variety of resources available to assist you in creating a credit card repayment strategy. With the aid of trusted financial specialists, you may be able to establish your best budgeting strategy, learn how to haggle with creditors, or apply for economic hardship programs to reduce some of your expenditures.

A nonprofit credit counseling agency is an excellent place to start. These organizations provide free first consultations to anybody who needs basic budgeting assistance or wants to look into debt relief alternatives. They can assist you in taking a comprehensive picture of your position, including any other debt you may have, such as school loans or a mortgage. A debt management plan, which is a paid program that tries to minimize your credit card debt, may be available via the counseling organization.

Debt management programs aren’t for everyone; however, we’ll get to that later. Use a national network like the National Foundation for Credit Counseling to locate a local credit counselor. If you’re having trouble paying off debt because you can’t afford to pay your monthly obligations like rent and electricity, there are local, state, and national organizations that can help.

For example, 211 is a United Way-supported national program that connects people in financial need with local services. Call 211 from any phone to be connected to the resources you need, whether it’s assistance with federal benefit programs or locating rental assistance. Getting the benefits you deserve might offer you the breathing room you need to reduce your debt.

3. Consider a 0% APR Credit Card Balance Transfer

If you can pay off all of your debt before the intro period ends (and the balance transfer charge doesn’t negate your savings), this is a good option.

A 0% APR balance transfer card might be a good alternative if you need some time to get your finances in shape and don’t want to rack up a lot of credit card interest charges.

For debt transfers, these cards generally offer up to 18 months of 0% APR, which means you may transfer your previous balance to a new credit card and avoid paying interest for a period of time. Keep in mind that most 0% APR deals come with a balance transfer fee, and any purchases you make after opening the card will begin accumulating interest immediately, so make sure to pay them off as quickly as possible to prevent accruing further interest charges.

Use the balance transfer as an excuse to disregard your debt during the introductory APR period, as interest will begin to accrue after the introductory APR period ends. Instead, aim to save enough to pay off the balance by the end of the promotional period, or split the sum by the number of months you have to pay it off and pay down that amount of debt each month until you’ve paid it off completely by the time the introductory APR expires.

4. Create a Budget

When you’re ready to modify your spending patterns and get rid of credit card debt, a budget may be quite beneficial. But it won’t help you much until you stick to the rules you’ve set for yourself.

If you don’t already have one, making one can give clarity where there was previously none. The first step in creating a budget is to go back over your spending from the previous month (or several months) to see if any trends emerge. One glance at your costs may reveal that it’s time to cut back on services you no longer use, or that grocery shopping excursions may be streamlined to save money on meals.

After you’ve figured out your costs, it’s time to choose a budgeting approach that you like. A zero-based budget that you regularly follow could be the most motivating for you if you’re organized and enjoy a good spreadsheet. If budgeting every cent that comes in and goes out feels unsustainable to you, you may instead try budgeting with numerous accounts. This is a more hands-off strategy in which you divide your money across different bank accounts, each with its own purpose.

In any event, sticking to a budget that helps you decide where to spend your money can be beneficial. Experts frequently advocate the 50/30/20 strategy, which pushes you to spend 50% or less of your after-tax income on necessities like housing and food, 30% or less on wants but not needs, and 20% or more on savings objectives like retirement and debt repayment. While that may not be feasible right now, these are some principles to strive for.

5. Target One Debt at a Time

Do you have a balance on many credit cards? If that’s the case, make sure you always pay the minimum on each card. Then concentrate on paying down one card’s total debt at a time. You have two options for selecting which card to attack:

Examine the interest rate portion of your bills to determine which credit card has the highest interest rate, and focus on paying off that debt first.

Pay down the card with the smallest amount first, then transfer the cash to the next smallest balance.

6. Lower Your Bills

Cutting back on your usual monthly expenditures is a fantastic location to start freeing up money to put toward debt repayment! You may do this in a variety of ways, including being more conscious of your power usage, meal preparation, and purchasing generic products.

You’re about to feel like you’ve received a promotion. So make sure you’re using this extra cash to pay off debt rather than squandering it on frivolous things!

7. Prioritize Your Spending

When figuring out how to get rid of credit card debt, start with the basics, says Sean Fox, co-president and CRO of Freedom Financial Network, a debt settlement firm. Food, shelter, and clothes are among the necessities.

Then, according to Fox, make sure you pay at least the minimum on secured obligations. A valuable item (often referred to as “collateral”), such as a vehicle or a home, is used to secure this sort of debt. He advises that if you don’t make regular payments on secured debt, you risk losing the asset that backs the loan.

Pay attention to student loan debt as well. Why? Because the federal government, which backs most student loan debt, has the power to penalize you financially if you fail on a loan. The government, for example, can seize your income, tax returns, and Social Security payments. If you have a private student loan, the lender can’t go after your income or Social Security benefits, but it can go to court to collect the debt.

While you’re trying to get out of debt, don’t use your credit cards. Using cash or a debit card to pay for goods might help you avoid racking up debt while attempting to pay it off, which can be a stressful experience.

First and foremost, make sure you’re paying at least the minimum on all of your existing obligations.

8. Set a Strategy

The snowball technique, avalanche method, and blizzard method are the three primary debt-reduction tactics. Here’s how it works for each:

Snowball Method

If you’re inspired by tiny victories, think about this. The debt snowball approach can be used if you want modest, regular victories as motivation to pay off all of your debt. 

Regardless of the credit card interest rate, this method focuses on paying off the debt with the least balance first. If you’re afraid about losing motivation by paying off a high debt initially, start with a lower number that you can cross off your list sooner.

This method may be your best choice if you need tiny victories to keep you motivated along the road.

Avalanche Method

If you want to save the maximum money on interest, think about it.

Now that you have a strategy in place, it’s time to get started on paying off your debt. The debt avalanche approach is one option you might explore. With this method, you’ll be able to identify the debt with the greatest interest rate and prioritize it.

The idea is that a higher-interest loan will cost you the most (compared to the amount of debt you owe) over the same length of time, therefore you want to pay it off as quickly as feasible. Then pay off the next highest interest rate loan, and so on.

This may be the best option for you if you’ll be most motivated by saving the most money by paying off the highest-interest loan first.

Blizzard method

The blizzard technique is the third debt payback option. This method includes paying down the lowest-interest amount first (snowball) and subsequently the highest-interest balance (avalanche).

“While the avalanche approach saves the most money, some people favor the snowball method for a quick win,” Harzog says. “With the snowstorm, you receive an emotional lift while still saving money with the avalanche.” Paying off credit card debt, regardless of your approach, can help you boost your credit score. This is because one of the most essential variables in calculating your credit scores is payment history, or how frequently you make on-time payments for your credit cards.

9. Consolidate Credit Card Debt

If the avalanche and snowball methods have left you spinning and you’re still paying high interest rates on several cards, a credit card consolidation loan or a modest personal loan can help you combine your debt.

This is an excellent strategy to pay off credit card debt. Your debt is consolidated into an unsecured personal loan with a three- to seven-year repayment period. Even while your total debt will remain the same, you won’t be paying excessive interest rates along the way.

Because every situation is unique, use this calculator to discover if a small personal loan is the best option for you.

Another advantage of a modest personal loan is that it might help you improve your credit score if you qualify.

10. Obtain a Second Source of Income

Look for strategies to create extra money that you can use to pay off debt if you’re currently on a tight budget or would prefer to earn more than spend less. You may, for example, sell goods you no longer desire or need in order to obtain a fast cash injection. Using services like Airbnb, Turo, and JustPark to rent out an additional room, your car, or your parking spot while you’re not using them may also be profitable.

Tutoring online, side-hustling, or user-testing digital products on sites like UserTesting.com are all options for making extra cash from home. You may even work part-time or on your own time with a side hustle like grocery shopping on Instacart or food delivery on DoorDash or Postmates. Calculate how much more money you’ll need to start paying off your debt; taking on too much work on top of your present responsibilities might lead to burnout. Another alternative is to ask for a raise at work after conducting market research in your sector and demonstrating how you’ve added value to the firm.

11. Consider Debt Settlement or Bankruptcy

Two more options for getting out of credit card debt are debt settlement and bankruptcy. The problem is that they will almost certainly have an impact on your credit score. Former banker and creator of Breaking Into Wall Street Brian Dechesare cautions that these tactics should only be utilized as a last option. “You should only consider both in severe cases when all other choices have been tried and you can’t make ends meet to pay,” he advises.

12. Save a $1,000 Emergency Fund

If the thought of getting rid of those credit cards makes you nervous because you use them as an emergency fund, establish a real emergency fund as soon as feasible.

Keep money in savings as a safety net against those “life happens” situations. And believe us when we say it’s far superior to a credit card. You will not be charged interest if you pay cash for an emergency.

13. Tap Into Your Home’s Equity

If you want a lower interest rate and are comfortable using your home as collateral, this is a good option.

If you own a house, you may be able to use the equity in your home to pay off debt. Here are a few possibilities to consider:

As a source of money to pay off high-interest credit card debt, a home equity line of credit (HELOC) might be used. You don’t need perfect credit to obtain a favorable rate on a HELOC, and you can usually get a cheaper rate than you would on an unsecured personal loan.

Cash-out refinancing: A cash-out refinance allows you to take money out of your house by refinancing your current mortgage for a higher sum.

14. Recognize That You Are Not Alone

Whether your credit card debt is in the hundreds of dollars or thousands of dollars, keep in mind that you are not alone. Credit card debt also plays a significant part in the lives of the most recent generation of college students and graduates.

In a 2019 survey of more than 30,000 college students, 36 percent said they owed $1,000 or more on credit cards. According to another research, around 49% of Gen Z respondents and 51% of millennials claimed they’ve maxed out their credit cards at least once.

All of this is to suggest that, while your current situation may seem dire, you’re not alone in your struggle with credit card debt. Most individuals can dig themselves out of a hole, and you can, too, if you have the correct plan and enough drive.

15. Understand How to Use Credit Responsibly

It’s just as essential to maintain solid habits to prevent acquiring debt once you’ve paid off your debt. You don’t have to give up credit cards altogether if you’re dedicated to using it properly; in fact, using a credit card to make frequent purchases and paying them off promptly is one of the tried-and-true strategies for improving your credit score.

Once you’ve paid off your credit card debt, stick to the budget you set up. You can resume using credit cards whenever you’re ready and sure that you can keep your debt under control. If you must use a credit card to fund something, create a strategy to pay it off in a timely manner. Credit cards are a tool that should be used with care and meaning.

It’s also critical to keep an eye on your credit report, which contains the data that goes into calculating your score. Checking your credit on a regular basis allows you to see any changes in your score, which might be the consequence of a missed or late bill payment or an increase in your account balance. Understanding the factors that lead to excellent credit can help you remember how important it is to keep to your good habits.

Final Thoughts

Getting rid of credit card debt does not generally happen overnight. If you took a long time to go into debt, it may take a long time to get out of it.

Just remember that making regular, on-time payments every month is one of the most essential things you can do.

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