Being in debt sucks, plain and simple. Australia alone has a substantially shocking margin of household debt nearing the highest worldwide. Your credit, financial opportunities, and general financial standing take a big hit when you fall into debt – and it is very easy to do.
You have a huge amount of credit card debt, and you have no idea how you’re going to pay it off. In fact, the amount you owe is so overwhelming that you’ve been avoiding the issue altogether. If left unchecked, credit card debt can spiral out of control. We’ve put together a guide to getting out of debt quickly and properly as well as how to manage your debt without being completely broke.
1. Figure Out What You Owe and Set a Budget
The best debt solutions begin with figuring out what you owe. This will help you set a budget and develop a plan of attack.
To figure out what you owe in an organised fashion, create a spreadsheet. This spreadsheet should contain the dirty details about all your credit cards: the total balance, the minimum monthly payments, the interest rates, and the due dates. Once you’ve got all this information compiled, you can set your budget.
Ideally, you’ll want to create a budget that allows you to pay a little more than the monthly minimums due. Now, we realize that your budget may already be pretty tight. Take a hard look at your spending habits over the past few months. Make note of all the money you spent on luxury items versus on necessities. Subtract your luxury spending from your total spending and allow this to be your budget until your credit card debts are paid off.
It can often be very clear when your debt has spiraled out of control, but other times it can sneak up on you and when credit card or loan debt gets to be overwhelming, it is easy to go straight to denial. You need to snap out of that denial to give your debt attention it needs to disappear.
2. Choose a Repayment Strategy
There are a few different strategies for paying back your debts. Each has its benefits but ultimately you’ll want to choose the one that will actually motivate you to repay.
Highest Interest Rate First
Paying off the highest interest rate card first definitely makes the most sense financially. This strategy will save you the most money overall as it will limit the total compound interest on your debt. Once the balance on one card is paid off, you move on to paying off the one with the next highest interest rate.
Pay Off the Lowest Balance
Also known as the snowball strategy, paying off the card with the lowest balance is great for those who love a quick win. Compared to other debt solutions though, this one will not save you the most money in the long run. However, it can give you some time to save money for your cards with the most debt.
Consolidate Your Cards
If you’re someone who struggles to keep track of payments, consolidating your debts may be the best debt solutions option for you. This repayment strategy helps you focus on one large number instead of multiple smaller ones. However, you should still try to pay more than the monthly minimum to ensure you stay on track.
You may also want to consider consolidating your debt and then making a balance transfer to another card with an interest-free period. Many cards offer interest-free periods as long as 24 months. But make sure you don’t use this time to ignore your debts. Instead, use it to repay as much as possible before that interest kicks in.
Balance Transfers
Credit card balance transfers are credit accounts with 0% APRs (usually introductory) that are used to reduce the burden of other credit card interest rates. With the balance from this low-interest card, you can pay off your more aggressive debts and combine them into one low-interest account.
Balance transfers can absolutely be helpful. However, it is easy to get stuck in the cycle of using balance transfer after balance transfer to avoid the later higher APR. Remember that moving a balance isn’t the same as getting rid of it.
Auto Payments
The best way to make credit card payments a priority is to set up auto payments for each statement cycle. This will allow you to make your monthly minimum payments before engaging in any unnecessary spending.
3. Stop Swiping
You need to stop swiping your credit cards and stick to using only cash or debit cards. To make this easier, you should leave your credit cards at home when you go out. Hide them in a drawer or have a trusted friend or family member hold on to them for you.
You can even cut them up and wait to order new ones until your debts are repaid. Whatever you do, don’t close the credit card accounts completely. The length a card is opened for can affect your credit score. Closing the card will only negatively affect your score.
4. Grow Your Income
There are a ton of things you can do to get cash quickly without the need for a lender.
- Pick up a side hustle in addition to your full-time job like driving for Uber, freelance writing or blogging, or housekeeping. Extra income can be a great way to pay down debts fast
- Request overtime if you work for a company that offers additional hours
- Sell your stuff on Craigslist, eBay, or DePop. Look through your closet and garage for the junk you never use anymore. One person’s trash is another one’s treasure.
5. Save, Save, Save
Saving your money is how you will be able to pay off that debt. There are many ways to save money out there, and you should do your best to making a savings plan that works for you.
On top of saving money to use for debt repayments, try to save additional money on top of that to bulk up your savings account. It doesn’t have to be a lot of money at all. Start with a couple dollars here and there, then gradually add more money to your savings account and do not spend that money on anything.
The security net of having a savings count and nurturing it until it can hold a substantial amount of money will make you feel safer and proud of yourself as well. When an emergency comes around, you will be both debt-free and prepared.
Debt Solutions
Implementing these debt solutions will help you repay your credit cards fast and while paying off your credit card debts is a huge accomplishment, often times it’s not the end of your financial woes.
Many people with poor credit card spending habits have poor credit scores and struggle to qualify for loans because of it. If your bad credit is holding you back after repaying your loans, take a look at how our bad credit loans can help you.
Disclaimer: Please be aware that Cigno Loans’ articles do not replace advice from an accountant or financial advisor. All information provided is intended to be used as a guide only, as it does not take into account your personal financial situation or needs. If you require assistance, it is recommended that you consult a licensed financial or tax advisor.