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How to Conquer Credit Card Debt

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It is no secret that the average American’s credit card debt is out of control. According to a report from the Federal Reserve, the average credit card debt for a U.S. adult with a credit card is $5,284 and nearly double that at $9,600 when considering the credit card debt per household. While we can debate how and why we got here, what we really need to determine is how we get out. Here are five simple ways to pay off your credit card and start to live a life free from minimum payments and balance transfers.

Reality Check

Start to break the debt habit by taking a hard look at where and how you are spending your money. What items are you choosing to pay for with credit? Are you using your card for trips to the grocery store, a lunch out with friends, or to pay for a weekend trip? If you are paying for nonessential items with credit because you don’t have the money in your account you will need to rethink your spending habits. If you are tempted to purchase items on credit to accrue points and rewards, but are unable to pay the balance each month, you need add up the real costs for credit card “perks.” Unless you are disciplined enough to pay off each balance in full, chances are any incentives you are getting from buying on credit are simply not worth the cost of accruing interest in the form of a monthly finance charge. Take a few minutes now to plan ahead by using our monthly credit card payment calculator to determine how long it will take to payoff your card.

Transfer Your Balance

Overspending and accruing interest can make it difficult to make more than the minimum payment on your credit card. Add in any late fees, and it can feel like you are drowning in credit card debt. If you have a balance on your card that will take several months, or even years to pay off, you might want to consider transferring the balance to a card offering a 0% introductory offer. Just make sure you calculate the cost of the transfer fee (typically 3% of the amount you transfer) and weigh it against the interest you are accruing on your current card (which will typically be in the double digits). Shop around for the best card by looking at the cost associated with the transfer and the length of the introductory rate – typically 6-18 months.  With any luck, you may be able to find a bank that will issue you a card at a 0% introductory rate for 18 months without a transfer fee. Use our credit card balance calculator to calculate your potential savings.

If you decide that transferring your balance is your best solution for debt reduction, attack your credit card debt! Without accruing interest, now is the time to make some real headway on your debt. Just make sure you are careful to pay your bill on time to avoid any change in your APR.

Make a Budget

If you don’t have a budget, start one now. Although you might think it restrictive, making a detailed plan of how to spend each dollar every month can give you far greater freedom than the chains of debt resulting from unaccountable spending. Most Americans spend impulsively, and just the process of writing down a purpose for every dollar from your paycheck or any other income each month, will give you greater will power to reduce frivolous spending.

Each month, determine what exactly you NEED to spend money on. This will include all your minimum debt payments and living expenses. Then categorize all your expenses – ideally, you will also allot a portion of money into a savings account for any unforeseen emergency (more on that below). Assign each category an assigned amount of money to cover that expense. Once you have a detailed budget, look at any variable expenses that can be minimized, and use all excess to pay the greatest possible amount toward your credit card debt.  Discipline and determination will make following your budget successful and debt payoff possible.

Don’t Carry Your Credit Card

If you are using a credit card to pay for everyday expenses and continue to carry a balance each month, then you need to stop relying on the convenience of paying with credit.  Without discipline, having a credit card easily accessible is just begging for more debt trouble. The simplest way to stop unplanned spending is to keep your credit card at home. If you are unable to control the desire to grab for the card, you might want to consider filing all pertinent information regarding the card (i.e. the account, balance due, terms and conditions statement, and phone number for lost/stolen cards) and cutting up your card – but, remember cutting your card does not close your account.  Be sure to continue to make on time monthly payments and determine when you want to close the account.

Paying for any variable expenses with cash or your debit card will keep you from going into further credit card debt. It takes extra planning to withdraw the needed cash from the bank, and extra diligence to not overspend, but it also brings an added measure of accountability. When the cash is gone, so is the spending. Debit cards are a convenient useful tool, but without tracking each purchase, you could find that too many transactions have you reaching for the credit card before the month is over. Knowing your spending habits, will help you develop an effective payment system that keeps your spending at bay so more money can be used to pay off credit card debt.

Get a Side Gig

Once you are committed to knocking out your credit card balance, every possible solution should be on the table. Getting a side job, can really go a long way in knocking out the debt. Although it will take up more time in your day, it will also be time spent in moving you forward financially instead of adding to the problem with the continued spending that can come with leisure time.

When looking for something on the side, be sure to find a job that requires very little or no overhead to begin. For example, if you are good at home or office organizing, you may want to offer that service to others and charge by the hour. Tutoring, blogging, consulting, and offering your services as a handyman or a housecleaner are a few ideas that take little money to get you started. The important thing is to recognize what you are good at and determine how to make it a profitable side business. This process takes a lot of motivation, but nothing can light a fire under an aspiring entrepreneur than watching your hard-earned money barely covering the minimum credit card payment.

Start an Emergency Savings

If you are one of the millions of people who found themselves in trouble with credit card debt due to life circumstances that were beyond your control, make sure you make a financial plan that includes emergency savings.  Once you have paid off your credit card, use all the money you allocated to that debt along with any additional funds towards establishing a long-term emergency fund (assuming you already have your short-term fund established). Life is full of unexpected events that can wreak havoc on our finances. Establishing a long-term emergency fund (3-6 months of expenses), will give you the peace of mind when a crises or unanticipated events happen. Preparing for these situations can keep you free from perpetual debt and the emotional weight packaged with it.  Find out how much you need to save for an emergency with our emergency savings calculator.

Don’t Repeat Past Mistakes

While this is the last step, it can be the most difficult. Even after all the hard work of tackling your credit card debt, if you are not careful, it can be easy to slip back into the vicious cycle of debt and payments. Make a decision and commitment to never be in credit card debt again. After making this determination, put a system in place that can keep your commitment possible. Chances are, if you were committed to paying off your credit card debt, you also developed better spending habits that serve to keep any excessive spending at bay. That alone, will put you in the driver’s seat of your future financial life.

Remember that you don’t have to feel helpless when it comes to credit card debt. Developing a plan to attack the debt, along with the life skills to keep you financially focused will eventually help you to be free from the shackles of debt and on a road to financial freedom.