Going into the new year with old credit card debt is not ideal, nor is it uncommon. In fact, it's kind of an American tradition to overspend at the end of the year with little or no plan to pay off newly acquired debt.
Credit Card Banking Rate Insights
- The average cardholder currently has $5,769 in credit card debt. (New York Fed)
- U.S. holiday shoppers expect to spend about $1,455 during the season. (Deloitte)
- 65% of holiday shoppers did not expect to set aside money or budget for holiday shopping. (bank rate)
- 19.6% of holiday shoppers intended to roll over credit balances for purchases. (U.S. News & World Report)
But with the right strategy, these obligations can be removed quickly and efficiently. By creating a personalized debt repayment plan, you can reduce your financial expenses and get back into the black in record time.This step-by-step approach will get you there.
Are you ready? Let's go!
- 1 Step 1: Gather Information
- 2 Step 2: Dedicated Determining Debt Payments
- 3 Step 3: Organize and Prioritize
- 4 Step 4: Suspend charges to your plan's card
- 5 Step 5: Monitor progress and reward Give
- 6 Step 6: Celebrate the Grand Finale
Step 1: Gather Information
Know exactly how much you owe and what credit cards you use. Your balance will appear on your most recent billing statement, but may not be accurate as it may not yet fully reflect your holiday spending. To check your actual balance, log into your credit card issuer's website or open the app and check your balance.
On paper or a computer spreadsheet, write down your credit card company, balance, expected minimum payment, and annual interest rate.
Seek professional help
“Reducing credit card debt,” said John Pfisterer, former vice president of finance at Capital One. If you're forced to choose between two payments, it's time to seek professional help to resolve the issue.”
A good credit counselor will help you develop a debt management plan. It will help you achieve your goals, such as formulating.
Step 2: Dedicated Determining Debt Payments
Consider your budget carefully. List everything you'll spend money on during the month, from necessities (housing, car and fuel bills, utilities, cell phones, groceries, etc.) to optional expenses (entertainment, eating out, changing clothes, etc.). For regular expenses like haircuts and vacations, calculate and add monthly expenses. So if a normal summer vacation is $3,000 he writes down $250.
Total your expenses and subtract that amount from your monthly net income. The remainder is the minimum amount that must be paid to the creditor.
Consider all possible ways you can reduce your spending or increase your income without delay or undue difficulty. For example, let's say you signed up for three $30 streaming services. If you rarely see it, cancel today and add that amount to your fixed debt payments.How about a side hustle where you can earn an extra $100 a month with little effort?
Most The important factor is to be realistic. your plan. It's not a question of whether you can or not.
Step 3: Organize and Prioritize
Go back to your credit card balance!
Creditors with the highest interest rates pay the most to your creditors and the least amount to other creditors for faster repayment. This is often called the Debt Avalanche Act. If the first account is zero, the credit card with the next highest APR will receive the highest payout. The amount you can send each month will not change. Ultimately, the last credit card issuer on the list will receive the full amount.
Let's say you have the following credit cards for a total of $6,700 and spend $500 each month to pay off your debt.
|Credit Cards||Balance||APR||Monthly payment|
|Bank of America||$2,000||17.74%||$50|
In this arrangement , according to this calculator, in 16 months you will be debt free and pay $941.35 in interest. Without redistributing payments, it would take him five years and one month to get out of debt, costing him $3,079.91 in interest.
Which one is better?
Is Debt Avalanche Not For You? Three Options
- Debt Consolidation Loans: You may be able to pay off your debt with a personal loan with an APR lower than the card's average annual interest rate.
- 0% Annual Interest Balance Transfer card: Allows you to transfer all or part of your high interest credit card debt to a new card with no monthly interest and a regular interest rate. If you are able to pay off your debt before the is applied, there will be a fee of 2% to 4% of the remittance amount.
- Debt Management Plans:Nonprofit credit agencies offer these plans to pay your creditors once you make a payment. In exchange, the interest rate can be lowered.
Step 4: Suspend charges to your plan's card
Do not use your plan's card for any transactions while in repayment mode. To avoid temptation:
- Remove account numbers from all online retailers.
- Remove a card from your mobile wallet.
- Remove your physical card from your wallet and store it in a safe place.
To buy what you want or need, select the debit card associated with your checking account or use a credit card that isn't on your plan. For credit cards, make sure you have very little or no debt. It may even be a new account opened for exactly this purpose. Use it only if you are absolutely sure that you will pay the balance in full by the due date of the invoice.
One of the exciting aspects of this step is that it can improve your credit score. Make all your payments on time and increase the distance between your debt and your card's credit limit. Payment history and credit utilization are the two most important factors in your FICO credit score, so these scores can increase as your balance decreases.
Once you reach this point, it's especially important to involve your loved ones in your plans. “By sharing your plan with your partner, family, close friends, or her community online, you can be accountable and reduce the chances of you not meeting your goals,” says Oak View Law Group finance. Lyle Solomon, expert and lead attorney, said: “It increases your willingness to stick to a debt repayment plan.”
Step 5: Monitor progress and reward Give
Write down all your starting balances in a place you can access often, such as a wall calendar. After each payment, check your new balance and compare it with your original balance.
No significant reduction is seen at first. But keep doing it.
This process may make you want to transfer additional funds whenever possible. You may be able to sell dusty items such as old bicycles or electronics in your drawers. Apply earnings to one of your accounts.
It's also a good idea to reward yourself along the way, especially if you cut your budget a lot. However, be careful not to reduce the remittance amount to the creditor or become a debt to the card left unattended.
Karma Peters, president and CEO of Michigan Legacy Credit Union, said: “It takes time, sacrifice, hard work and focus, but it can be done.”
Step 6: Celebrate the Grand Finale
Eventually, you can make it all the way through. Sending that final payment is an incredible moment. This is a big achievement.
Once you're done, all the money you've spent on past debts will be back in your budget.
For example, if he sends $500 a month to his creditors, he can loosen his budget so he doesn't feel constrained. Or put it all into a savings account, and in six months he'll have $3,000 for that vacation. Perhaps you want to save enough money to pay a big down payment on a new car with monthly payments you can afford. The choice is yours.
And after all this hard work and success, you are ready to take advantage of your credit card financially!