Pay Off Your Credit Card Debt: In the years before the COVID-19 pandemic, debt was already a big problem for Americans. In 2018, a study by Northwestern Mutual found that the average personal debt (not including home mortgages and for those with some debt) was over $38,000.
As we get closer to the third year of the pandemic, the situation is much worse.
The average U.S. household owes $155,622, which adds up to $15 trillion. This is 6.2% more than in January 2021. Student loans, mortgages, and, yes, credit card debt are all part of the debt. Many, many credit card debts.
No debt is fun, but credit card debt can be the worst because it usually has the highest interest rate and can ruin your credit score if you don’t take care of it quickly. When you have a lot of credit card debt, like many of us do, it can feel impossible to get out, but you need to start the process as soon as possible.
Dr. Guy Baker, author and founder of Wealth Teams Alliance, said that debt has grown because people have had to find ways to pay their most important bills. “Once things are back in order, the debts will have to be paid off.”
Baker stressed that it can be a painful process, but it can be done. Even if you have a lot of debt, there is a clear and well-trodden path to being debt-free. You might not be completely out of credit card debt in 2022, but you can do a lot to cut it down so that you will be free someday. What do those steps look like? To find out, GOBankingRates talked to a number of financial experts.
Follow These 11 Steps to Pay Off Your Credit Card Debt
1. Add up, look over, and think about your debts.
Howard Dvorkin, a CPA and the head of Debt.com, says that the first step to getting out of debt is to make a list of everything you owe. “Know how much you owe, to whom, and where you stand with payments,” he said.
As you do this, you should keep an eye out for anything that seems odd (identity theft is alive and well). From there, take the time to look at how and where you spend your money.
The CFO of Clarify Capital, Nishank Khanna, said, “Take a hard look at where your money is going and how much is coming in.” “Knowing how you spend your money will give you a good idea of where you’re spending too much and where you can cut back to save. Our spending habits often tell us something surprising about how we deal with money.
2. Make a budget using a spread sheet
Rick Orford, a personal finance expert and writer for The Financially Independent Millennial, said, “The best way for people to start paying off their credit card debt is to make a budget spreadsheet to track their income and expenses.” “Consumers can start by making a spreadsheet of their income and expenses from the last three months.”
From there, Orford says to tell the difference between what you want and what you need. He says, “Needs include things like rent, mortgage, insurance, and so on.” “Wants are the things that make us feel like we’re keeping up with the Joneses.”
Another way to think about this is to separate the things you need from the things you don’t need and promise to only spend money on the things you need. Keep your spreadsheet close by so you can track your spending and hold yourself accountable.
3. Start (or keep building) a fund for emergencies
This step could technically be part of the budgeting step, but it’s so important that it deserves its own step. Make sure you include some money in your budget for essentials that will go straight into an emergency fund. You’re not just being extra careful; you’re also helping yourself avoid getting deeper into debt in the future.
Khanna said, “Putting money away for a rainy-day fund has never been more important.” “There’s still a lot of financial uncertainty before you pay off your debt, and it’s likely to stay that way through 2021. If you haven’t already, you should save some money before you pay off your debt. Emergency funds are like a safety net for your money. When you have no savings, you may have to go into debt to stay alive. If you save money, you won’t have to take on more debt to get by.
4. Ask your credit card company what they can do to help.
If you’re in so much debt that you can’t see a way out, talk to your credit card company(s) to find out what they might be able to do to make things better. Even though these banks aren’t exactly known for being full of compassion, they still want to keep your business.
Marius Thauland, a financial expert at Sumo Finas, said that if you are having trouble paying your credit card bill, you should try to talk to customer service or a hardship officer. “Let them know you’re having trouble paying off your debt. They might lower your interest rate for a while or stop charging you late fees to give you a little breathing room.
5. Look into the different ways to get out of debt.
Once you’ve figured out how much debt you have, look into ways to get out of debt. What you can do depends on the kind and amount of debt you have.
Dvorkin said, “Check to see if you can get a balance transfer offer.” “This is one of the fastest ways to pay off credit card debt if you owe $5,000 or less. A recent survey by the New York Fed Credit showed that more credit cards are being turned down. This could mean that people who haven’t worked or made money for a while won’t get as many balance transfer offers.
Dvorkin says that people with high minimum payments should look into debt consolidation. “Those with up to $25,000 in credit card debt should consider this,” he said.
A debt management programme is better for people who owe more than $25,000 on their credit cards or who have bad credit. “In June, the Consumer Financial Protection Bureau (CFPB) released its quarterly report on trends in debt settlement and credit counselling. In this report, it said that as our economy goes through another downturn, there will be more debt settlements,” Dvorkin said.
And finally, you can try to settle your debt. Dvorkin says that this option is only for people who “don’t care about the damage to their credit but want to get out of debt without filing for bankruptcy.” You should only consider bankruptcy if there’s no other way out and you’ve gotten good advice about it.
6. If you can, think about refinancing your mortgage.
“Once you have a lot of credit card debt, you often end up paying a lot of interest every month. Some credit cards have interest rates as high as 20%, said Melissa Cohn, an executive mortgage banker at New York’s Raveis Mortgage.
“If you own a home with equity, think about getting a cash-out refinance on your mortgage. This will bring your interest payments closer to the threes and get rid of those balances,” said Cohn. “Having a lot of debt has a big effect on your credit score, so this can be one of the first steps you take to fix it. If you can, it’s better to put a small amount of debt on several credit cards than to put it all on one. Talk to your lenders to find out if there are any loans with lower interest rates.”
7. Set a date for getting out of debt, even if it’s a long way off.
Figure out how long it will take you to pay off your debt. (To start, find a free debt payoff calculator online, like this one from FinancialMentor. There are a lot of them.) Once you set a deadline, don’t forget about it, even if it’s a few years away. This is important because it helps the deadline stick in people’s minds as a goal.
R.J. Weiss, a certified financial planner and founder of the personal finance site The Ways to Wealth, says that when setting goals, it’s best to give yourself a deadline for reaching your goal. “Once you’ve added up all your debts, it’s important to make a plan for when you’ll pay them off. Most importantly, you should change your deadline at least once a month to reflect how well you’re doing. It is hard to stay motivated while paying off debt. That’s why it’s so important to set a date to pay off your debt. It helps you keep your mind on what’s important.”
8. Decide which credit card you’ll pay off first and in what order.
Even though you have to pay at least the minimum on all of your credit cards every month, you should focus on paying off one card at a time.
Tracey Bissett, CFA, president and chief financial fitness trainer at Bissett Financial Fitness, said, “Usually start with the debt with the highest interest rate and work your way down to the lowest interest rate.” “From a psychological or mental point of view, it might be a good quick win to pay off a smaller balance on one card. This will give you the confidence to keep going.”
Bissett also tells people to make payments as often as possible, not just once a month, because doing so “will reduce the amount of interest that continues to build up, as the principal balance will always be going down.”
9. Don’t use credit cards any more (as Much as Possible)
Remember that you have to keep a card off the table when you pay it off. Think of it as over and done with. In an ideal world, you shouldn’t use any credit cards at all, but if you have to, use it only for things like groceries or gas. Also, try to think of different ways to pay.
Bissett asked, “If you have rewards on your credit cards, can you use them to pay for things you already have to buy, give them as gifts so you don’t have to spend money, or get the rewards and sell them for money to pay off your card balance?” “Think about rewards that give you things like gift cards or real goods like electronics or small appliances.”
10. Get a friend to help you.
Paying off debt can be hard on the mind and heart. It’s normal to feel overwhelmed and like you might never get out of debt. This is called “debt fatigue,” by the way. You don’t have to go through this on your own. You can pay a financial coach or even a financial therapist to help you find ways to deal with your situation, but these services might be too expensive for you. If you’re having trouble or feel like you could use some extra accountability, letting other people in can help.
Sundin told them, “Tell your family and friends that you’re paying off your credit card debt.” “This step gives you support for your work and makes it harder for you to give in to temptations. And you may find that someone else is doing the same thing more often than not. Now that you have a friend, you can help each other keep track of your debt and stick to your payment plans.
11. Patience! Change is tough.
Bissett told him, “Be kind to yourself.” “You are probably feeling bad emotions like guilt, shame, embarrassment, or others. You’re not alone, and things will get better. Most people who have credit card debt haven’t been spending too much. Most of the time, you didn’t do anything to cause your debt, like losing your job, getting sick, getting divorced, having your business fail, or, in the case of [late], a global pandemic.
Don’t forget that you’re not just paying off debt; you’re also changing how you handle money, which takes courage and time.
“Change is hard. You have to really want a different result, and most people never change their habits,” said Carma Peters, CEO of Michigan Legacy Credit Union. “You have to hate where you are so much that you want to do something else for the rest of your life. This is how a peace treaty changes. Every day, one right choice is to start exercising, and every day, one right choice is to change your money habits.