Attack Your Debt Where It Hurts!
What is the Best Way to Pay Off Credit Card Debt?
There are some great 0% transfer deals available which offer the best way to consolidate large credit card debt without feeling like you are swimming in interest charges. I'm not going to deal with that here, but there is some great advice available at Money Saving Expert.
Not everyone's application for a new card with a 0% interest transfer deal will be accepted. If that's the case you'll need to come up with a logical plan for paying off your total credit card debt.
This three-step guide will help you get a handle on your finances, organise your outstanding credit cards properly, and develop a get-out-of-debt plan. Be warned, you must be prepared not to make any new purchases on credit for this plan to work. It will require discipline, but it is logical and effective.
Step One - List your cards
Get together all of the most recent bills for your outstanding credit and store cards. Make sure you don't miss any out. Check in with your spouse or partner to see if they have any cards that you are named on, but rarely or never use. Be thorough in this pursuit and gather information on any card you haven't fully paid off (even if you haven't used it for ages or it only has a tiny amount of debt left to pay off).
In the second column, list the annual interest rate on each one; this is usually stated on your monthly bill. If not, find the Terms and Conditions sheet you received when you first signed up for the card (you can always give the company a call if you can't find a copy at home).
Step Two - Organize your debt
Now create a new document with 4 columns headed Credit or Store Card, Balance Due, Minimum Monthly Payment and Interest Rate. Fill in the list of credit cards from step one, but this time arrange them in order from highest to the lowest annual interest rate. If two of your cards have the same annual interest rate, put the one that has the largest outstanding balance first. Then fill in the amount owing on that card and the minimum payment you are obliged to meet each month (this will be listed on your statement).
Step Three - Create Your Payment Plan
First of all, how much of the debt can you realistically afford to pay off each month? Don't just guess; create a thorough plan of incoming and outgoing money, and use whatever is left over to pay off credit card debts to the bank or other creditors. Be a little hard on yourself; cut out some of the luxuries for a while. If you're seriously in debt, it's unlikely you'll get yourself out unless you make some sacrifices and the monthly repayment hurts a little! So if you think you could quite comfortably pay off £400 a month, try for £500 or even £550. It's a bit like exercise; no pain, no gain! Make a note of the amount you decide.
- In the Monthly Payment column, next to the last card on the list, fill in the minimum monthly repayment required by the credit card company (as listed on your statement). Work your way up the list doing the same for all the credit/store cards except the top one listed.
- Add all the minimum amounts so far together. Then subtract this sum from the total monthly repayment amount you decided upon earlier (this is the amount you can realistically afford each month). So if your total minimum monthly payments (excluding the one for the top credit card) is £176.23 and you can afford total repayments of £500, you will be left with £323.77 to pay off your top credit card (as in the example above).
- Allocate the resulting amount to the first card on the list. This should cover your minimum monthly payment and start to make headway in clearing the amount owing on this particular credit card. If the amount you are left with is more than you owe on the first card, then great! You can allocate the remainder to the second card on the list.
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Reducing and Clearing Your Consumer Credit
Is it clear what you're doing by organizing the debts this way? You'll be paying the maximum possible amount on the card with the highest interest rate first. This card is the one that is costing you the most in needless interest expense each month so you'll be reducing credit card debt every single month. Of course, you shouldn't feel fully satisfied until all of your credit cards have been paid off and cleared, but it makes sense to start with the one that is hurting you the most.
Follow the plan you've just created until your first card is fully paid off. Then have a mini-celebration by ceremonially cutting that one into tiny pieces and cancelling the account. Then renew the plan, moving the second credit card to the top of the list. Continue the process for as long as it takes to clear the list altogether. This is absolutely the best way to pay off credit card debt faster if you are not eligible for a new 0% interest deal.
Now for some great news!
It's easy to get yourself into financial difficulties and it can prove difficult to pay off your credit card debt . The slippery slope of borrowing what you can't afford to pay from various creditors and banks is subtle and ripe for self-denial. Organization, logic and discipline are key. Think of it as a game, in which debt is your competitor and you have no choice but to be victorious! Good luck.
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