Each month, thousands of people struggle to pay their credit card debts. It has become a worldwide concern as some people in their 20s are already facing this problem. This has led to a dramatic lifestyle change for some people. Once, they were people who were enjoying the benefits of having a credit card and the next thing you know, they are deep in debt. The failure to pay their credit card debts has led people into declaring bankruptcy. Here are some steps to escape from the clutches of credit card companies.
Things You Will NeedA positive attitude, discipline and patience.
Step 1Make use of the credit card balance transfer
Most credit card companies offer a balance transfer, where they pay the money you owe to the bank and in return, you take up a card with them. The bank offering a balance transfer would often give discounts on interest rates if you choose to transfer your balance to them. This would be a good opportunity as you would be paying less interest on your outstanding debt while slowly paying it off.
Step 2Obtain a personal loan
Another way to save on the interest payments while paying your debt is to obtain a personal loan from the bank. Often, the personal loan interest rate would be lower than the credit card interest rate. You could then use the borrowed money to pay off the credit card bill. Therefore, you would be paying off the personal loan which attracts a lower interest rate, making your debt shrink faster.
Step 3Pay extra each month
Credit cards often allow you to pay the minimum amount due each month (roughly 5% of the total bill). What most people often overlook is that the interest charged on the amount outstanding is exorbitant. This interest charge is often hidden in the fine print of the application form when you apply for the credit card. If customers just pay the minimum amount due, it would take them forever to repay the debt. Therefore, credit card holders should pay as much as they can towards the outstanding balance.
Step 4Pay according to priority
If you have a few credit cards, start paying them off one at a time. Start with the one which charges the highest interest rate. After paying off that debt, continue with the second card and so on. Once you start to pay off the first card, paying off the rest of the cards should not be a problem. You could roll the payments for the first card to pay the second card. Say you are paying an extra $500 per month to get rid of the first credit card debt. After paying it off, use that $500 to start paying off the second credit card.
Step 5Do not spend more than what you can afford
With a credit card, people would have a tendency to overspend. If you have $1000 available to spend, keep your spending within that $1000. Spending more than the amount of money you have on hand would only bring you deeper into debt.
Step 6Create a debt management plan
Create a goal for yourself to reduce your debt. Reduce spending on unnecessary items and use the money to pay back the debt. Set a monthly target payment for yourself, for instance setting a target to pay an additional $200 each month towards the debt. Keep increasing the payments until the debt is finally paid off. By sticking to the plan, you will automatically find ways to cut back on other expenses to meet your payment goals.
Step 7Use a debit card
Cash is king! With the trend leaning towards the use of debit cards, it would be a good time to start using one. With debit cards, the money you spend comes out from your own savings, thus you are spending you own money. By using a debit card, you would think twice before buying something as the money is automatically debited from your savings account. Using debit cards would prevent you from falling into the death pit of credit card debt. In addition, you would save the annual credit card fee.
Following those steps would help you get out of credit card debt. It takes discipline, self control and patience to achieve your dream of being credit card debt free. It might be a daunting process at first, but it pays off in the end. Paying off credit card debt would also help improve your credit score which is important when you want to obtain financing in the future.