Putting yourself in a good financial position is always important, and one of the best ways to do this is to reduce your credit card debt. Or, even better, eliminate it entirely.
A disciplined and structured approach can help you eliminate your credit card debt, whether you have a $30,000 or $3,000 balance. Use the following tips to help get rid of your debt as fast as possible.
1. Find Out Where You Stand
You need to take stock and know where you stand before you can begin to reduce your credit card debt. Many people will think that there is debt is a certain amount – like $8,000 – when in reality it is actually $10,000 or $15,000. If you don’t know what your actual target is you will never be able to hit. You need to be completely honest with yourself about what your current situation is.
Action plan: Write your amount of debt down on each card you have – along with the interest rate.
2. Improve your interest rates.
The fastest way to save a lot of money on your credit card bills is negotiating a lower interest rate. Shaving just one to two percentage points can end up saving you hundreds of dollar as you are paying your debt off. Just making a simple phone call and asking politely might be all you need to do. Although your credit score does play a significant role in whether you will receive a rate cut or not, that isn’t the only factor that is considered. Each lender approaches this issue in its own way. It doesn’t hurt to ask.
Action plan: Call each of your credit card companies and ask for a lower interest rate. If successful, write your new interest rates down. You might also want to check out low interest and 0% APR credit cards.
3. Keep Track Of Your Expenses
Write down all of your committed, regular expenses (mortgage, insurance, utilities, car payments, cable, gym, phone, minimum credit card payments, etc.P and also track your other variable expenses like travel, entertainment and restaurant meals. You will be using this information to get your budget set up.
Action plan: Review one year of bank statements and credit card bills to give you an accurate picture of what your monthly spending is, and use financial software or a notebook to track your expenses. This will help to reduce debt payments
4. Create your budget
Now it is time for you to cut out some of your expenses. The key here is to be realistic about it. Some sacrifices will need to be made, but it isn’t necessary for you to live on water and bread alone. It can be more effective to cut back instead of cutting out certain things completely. It can be difficult to make dramatic adjustments to your lifestyle, and quite often small adjustments end up adding up to large savings. Quite often you can get the jump start that you need by doing things like changing the temperature on your thermostat by a couple of degrees, downgrading your premium cable plan or cutting out one pizza dinner every week. Make sure that you give your budget some breathing room in case some unexpected expense or emergency comes up.
Action plan: Come up with three ways that you either downgrade or cancel services and cut back immediately. Write them down. Divide up your discretionary monthly budget into weekly segments so you can better monitor whether you are staying on track or not.
5. Select your payoff strategy.
When it comes to payoff strategies for credit cards, there are two common ones. The first one is to send all of your extra money to the card with the highest interest rate and make the minimum payments on the other cards. Overall, this is the fastest way to reduce your debt. After you have paid off the first card, you will have more money, and you should be able to apply it to your credit card that has the next-highest rate, and so forth, to create a snowball effect with your debt payoff. With the second strategy, you first pay off the credit card that has the lowest balance while making the minimum payments on your other cards. Although this isn’t the most cost-effective method for getting rid of your debt, it is the quickest way to get rid of debt on one credit card, and it may give you a psychological boost to get rid of a bill permanently.
Action Plan: Select your strategy, and then get your cards ranked in the order you will paying them off.
6. Put away your plastic
In a 2000 study conducted by MIT researchers, they found that students who paid by credit card were willing to spend twice as much as what someone paying in cash. You can end up saving a lot of money when paying with cash because you start becoming more aware of your purchases.
Action plan: Put your credit cards someplace where they won’t be easily accessible. However, don’t cancel them. Whenever possible, pay with cash.
7. Find your support and motivation.
Having concrete goals will help to stay focused. If you get rid of debt maybe it will allow you to stop worrying about each bill that comes to your mailbox, or go on your dream vacation or save money for a downpayment on your dream home. Find people to swap challenges, successes, and stories with. There are plenty of forums and other places online where you can get support and find like-minded people.
Action plan: Write your goals down and keep them with you in your purse or wallet. Anytime you are tempted to overspend, look at your goals to remind yourself of what your big picture is.
8. Track your progress.
Although you don’t want to worry about your bills every day, watch your spending. Every couple of months you should take a look at your progress. Don’t let it consume your entire life. It took you time to accumulate all that debt, so it will take some time to get rid of it as well.
Action plan: Add reminders to your calendar for checking your finances. Having a page that has your starting balances on it, and then compare them with your current balances to check on your progress.