It’s so easy to swipe a credit card without thinking ahead about your payments, and before you know it, you may have some serious credit card debt piled up. Because of high interest rates and low monthly payment requirements, without a solid plan of attack it could take you more than 5 + years to get out of debt!
However, if you follow these 3 tips, then you could get out of debt in just one to three years.
Step 1 – Find or Get a Lower Interest Rate
Many credit cards have high interest rates, which means that the majority of your monthly payment amount is paying that interest and not your principle balance.
The fist thing you should do immediately is lower your credit card interest rate. You want more of your hard earned dollars going to the principle balance; this will save you many years of payments, not to mention thousands of dollars!
There are a few ways you can lower the interest rate:
- If you are in good standing, you may be able to negotiate a lower interest rate with your card issuer.
- If they won’t budge, begin looking for a new credit card that offers 0% balance-transfer and a lower interest rate than your current card.
- Next, consolidate all your credit card debt to this new card in order to get rid of the highest interest rates.
Step 2 – Set a Goal
How many years do you think it would take to pay off that debt at your current minimum monthly payment? The answer might surprise you!
You can tinker with a credit card calculator payoff simulator such as this one from credit.com to estimate how long it would take. Can you shave off time by increasing your payment amount?
Play with the numbers on the calculator to see how realistic your goal is. Easily adjust the sliders to change your payment amount and see how it affects your total time to payoff and how much money you will actually spend. Can you pay it all off in one year, two, three?
Here’s a great example using that calculator: If you have a credit card debt of $8,000 with a 12% interest rate and your minimum monthly payment is $160, it will take you over 5 years to pay it off! Plus you will spend $11,146 total over that time.
On the other hand, if you can up your monthly payment to $424 a month, then you can pay it off in less than 2 years, only paying $8,910 total.
Step 3 – Find Room in the Budget
You may be thinking that there is no way you can afford to pay more than your monthly minimum. You may not be able to add much at first, but that’s ok. Inspect your lifestyle and spending habits and see where you can cut back and save money.
For example, you could turn off the cable TV, cut back on daily coffee or soda, and eat out less. There are many little luxuries you can live without for a year or two. By making a few temporary sacrifices now, you could add a lot of money to that credit card payment and pay it off a lot sooner!
If you need help creating a family budget, start here for the basics.