When finances are tight, borrowing some money seems like the only viable option for many. However, when you are borrowing, it is essential to have a repayment plan in mind. Debt is costly and can cause you to lose money in the long run. Using credit cards is the norm these days, with many people carrying more than one credit card—often a poor financial decision.
There are several reasons why you need to kick your credit cards to the curb. One of these is that credit cards are costly, incurring the highest rates of interest. Secondly, you run the risk of abusing your credit card, which can easily put you in a financial mess. Additionally, credit cards can hurt your credit score. In the end, you will find yourself in a debt hole.
Don't worry though, if you've found yourself in this hole we are here to help you cut credit card debt.
How do you eliminate creditors and step into freedom? Below are powerful expert tips that you can use.
Create a budget
Proper budgeting is the first step to cutting costs. A budget will inform you where all your money is going and keep you from making impromptu or unnecessary purchases. Creating a budget starts with calculating your total income per month. After, you will write a list of basic expenses such as food and rent, followed by secondary costs such as gym membership and other subscriptions. Include your debt repayment as part of your expenses in the budget.
If you find creating and sticking to a budget difficult, we suggest using Debitize to keep you on track.
Cut on costs by living within your means
After you have created your budget, go back to it and find areas you can trim down. We all have that one thing in our budget that we can do without. Cutting down costs requires a bit of sacrifice on your part, but it pays off. Learn to separate your needs from your wants and stop spending money on items you can forego. If you don't do this, it will be very challenging for you to cut credit card debt out of your life.
Pay more than the minimum payment required
If your credit card company allows you to make monthly payments of, for example, 2% of your balance, pay more if you can.
If you have a debt of $5,000 earning 15% interest, paying the minimum $100 a month will result in years of debt and accumulation of interest. Even if you do not make any new purchases from the credit card, it will take you more than six years to be debt-free, and will have paid an additional $2,900 in interest.
Rather than go through that, try your best to pay off your debt by paying more than your minimum amount each month. This will help reduce how much you're charged for interest as well as shorten your payment timeline.
Eliminate your credit cards from the most expensive
One way to cut credit card debt is by getting rid of credit cards that you either don't need or that are harming you financially.
Having multiple cards is the surest way to accrue debt. If you're already in this position, it is prudent to reduce your number of cards to one or none. You could even choose a debit card instead of a credit card as it helps you better manage your finances.
If you have multiple credit cards, do not make equal payments on each of the cards. Instead, make substantial payments to the cards which have the highest interest first and reduce the amount with lower interest credit cards. This debt repayment technique, known as a debt avalanche, is the most efficient for managing your debt.
Keep off debt
The best way to pay off your credit card fast is to put it away and start making cash purchases. Using cash helps you to figure out how you are spending your money so that you can be more frugal.
Move your balance to low a low-interest credit card
You can take advantage of offers to transfer your money to a low-interest credit card. Companies often offer a free interest period, which could run for six to twelve months. The deal is not all rosy, however, as you will have to pay an up-front flat rate fee or a transfer fee of 3-5% based on the amount you want to transfer. Even with these fees, though, the transfer could be worth the effort in the long run.
Try debt consolidation
As stated earlier, credit card debt is incredibly expensive, some with interest rates of 15% per year. To cut this off, you can take a personal loan and pay off all off your credit cards so that you are left with one low-interest loan to worry about. Such a move can have you paying an annual interest of 4-8% per annum, which is a huge savings strategy. To benefit even more from this move, calculate your interest savings and bank them.
What does this all mean?
While credit cards are convenient, they can get you into deep financial trouble. The best way to manage credit debt is not to have it in the first place. You will realize that you do not need to live off debts if you practice living within your means, cutting off expenses, and tracking your spending patterns. Good money management practices can help you steer clear of unnecessary debts.
In which areas do you think you need to cut costs or stop spending entirely? Tell us about it in the comments.
Want to learn more about how to cut credit card debt? Read our article 6 Simple Ways to Avoid Credit Card Debt.