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Credit card debt is never a good thing. In some circumstances, an economic downturn could make repayment exponentially more difficult.
Economists taking part in Bankrate's second-quarter economic data poll say there is a 52% chance of a recession within the next 12 to 18 months. Employment has been strong so far, but rapid inflation, combined with a series of rate hikes by the Federal Reserve, has led to a volatile stock market. You've probably noticed that your income isn't as high as it used to be. Also, if you have card debt, you've probably noticed that the interest you're paying has gone up.
Some experts are predicting a “gradual recession” rather than a sharp drop from the Great Recession. Still, it's helpful to be prepared for a sharp recession in your situation. Paying off your credit card debt is one of the best ways to prepare for a recession and can make you much more resilient financially. Method is as follows.
- 1 Set a Debt Repayment Timeline
- 2 Choose a payment method
- 3 Consider a balance transfer credit card
- 4 Conclusion
Set a Debt Repayment Timeline
First and foremost, put together a rough timeline based on how much you can afford to pay back each month. The more money you can put into eliminating your credit card debt, the better.
Consider your necessary expenses (home and car payments, groceries, childcare, etc.) and determine where you can cut back.
Cut unnecessary expenses
“Take a good look at your finances and make some adjustments. Analyze and then decide what you can cut or cut back on.”
The first thing to do is get rid of unnecessary things like streaming services, meal prep boxes, and monthly clothing and jewelry deliveries. subscription. You can also arrange cheaper versions of plans and subscriptions you can't live without.
“Cancel or renegotiate your cable bill or find a cheaper cell phone plan,” Kress says. “This type of budgeting helps you use more of your income to pay off debt instead of paying a fixed cost of living.”
The application makes it easier.
Planning for debt repayment can be stressful and even confusing, but there are some budgeting apps that can help make it easier. finance. Simply link your credit card account and set a savings goal and date.
The app allows you to set budgets and goals from built-in lists. These include “get out of debt”, “retire”, “buy a house”, “save for college”, “buy a car”, and “emergency savings”. You can also request a progress summary by email.
Tally is a mobile app focused on helping users pay off their credit card debt. It also works as a credit card manager and automated debt tracker.
Every month, Tally offers a detailed payoff plan based on your credit card balance, due date, and interest rate. Monthly flexibility allows for unexpected payments.
Choose a payment method
There are several effective ways to pay off your credit card debt, but the two main methods are avalanche and snowball. . Each method is based on a different theory. The method you choose should be one that is likely to motivate you.
Snowball Debt Strategy
The snowball debt strategy pays off the smallest bills first and then works your way up to the largest bills. Each time you pay off a bill, redistribute the money you spent on that bill to pay off the next smaller debt. The idea is to start with easy achievements, quick wins, and build momentum until you get one big payoff.
The Avalanche Method
The avalanche method is based on economic efficiency and uses as much money as possible. The avalanche method focuses on paying off the highest interest debt first and then works its way down to the lowest interest debt. According to this theory, the less interest you pay, the more you can use to pay off the principal.
Consider a balance transfer credit card
Given that you may have accumulated debt on your credit card in the first place, you may be reluctant to consider a credit card as a solution to your problem. It can be an excellent financial tool for paying off credit card debt within. With these cards, you can save a lot on interest and fees, and get a head start on addressing your principal debt (or even paying it off entirely).
Maximize your interest-free payoff timeline
The Citi Simplicity® Card offers a 21-month loyalty rate for balance transfers made within 4 months of account opening. It offers the longest interest-free period available with a first-year APR of 0% (and then fluctuates from 18.24% to 28.99%), plus 0%. Following the 12-month introductory APR at the time of purchase, the same floating APR applies. In addition to this, the card has a “no late fees” policy, which means you will not be charged late fees or even an APR rate for penalties.
One notable downside of Citi Simplicity is its 3 percent (or $5, whichever is higher) balance transfer fee. A typical 3% fee is charged on many balance transfer cards. Also, you won't get any rewards or welcome bonuses, but that's the price you pay for a very long APR introductory offer.
When evaluating a balance transfer card, factor the balance transfer fee into the calculation and consider how much you can save on interest payments during the zero interest period to determine which option is best for you.
Get long-term value from your card
If you're interested in earning rewards while paying off your debt, Chase Freedom Unlimited® offers Offers 0% introductory APR for 15 months (first 60 days with balance transfer fee of 3% or $5, whichever is greater), 18.74% – 27.49% variable. After 60 days, that fee increases to 5%.
Freedom Unlimited is the perfect card for everyday spending as it allows you to earn unlimited 1.5% cashback on all purchases. Plus, get 5% back on Lyft purchases (through March 2025), 5% back on Chase Ultimate Rewards purchases, and 3% back on restaurant and drugstore purchases.
Additionally, there is no annual fee and a first year welcome bonus that adds up to 1.5% cash back to the original cash back rate on all purchases in the first 12 months. $20,000 (special offer by Bankrate). But be careful to only spend what you can comfortably repay each month, or hold back on spending completely until you've paid off your credit card debt. With your ideal payoff window, you can take advantage of Bankrate's credit card balance transfer calculator. Simply enter your current credit card balance and interest rate and compare with potential new card details and fees.
Prioritize building an emergency no matter what. Savings throughout the process. If you don't have an emergency fund yet, start now to protect yourself from the potential impact of a recession. Then, once the debt is paid off, budget to avoid credit card debt in the future.