A new year, a new decade but the same old credit card debt. Sigh. The possibly comforting news is you’re not alone – the average balance on credit cards is about $6,500, with revolving debt (most of which is credit card balances) clocking in at over $1 trillion last year.
The bad news (which isn’t that bad) is that if you want to make a dent in your credit card debt and reduce the amount of interest you pay each month, you’re going to have to make a few tough decisions. Here are some suggestions:
1. Take a breather: You probably took advantage of a lot of Black Friday and Cyber Monday deals last month. Now’s the time to avoid any new big ticket items, like appliances or vacations, unless you absolutely need them. It’s also a good idea to take a hard look at your credit card bill and see where most of your money is going – if you eat out a lot, consider cooking at home more, if you do lots of online shopping, avoid those sites for a few months.
2. Reduce your rate: Credit card interest rates are notoriously high. That makes it really difficult to dig yourself out of debt when you’re paying interest each month instead of debt. Contact your credit card companies and see if they’ll reduce your rate or suggest a no-frills card with a lower rate.
3. Focus on your most expensive card: Make sure to pay at least the monthly minimum on all your cards to avoid feels and penalties. But once that’s done, focus on paying down the card with the highest interest rate. Avoid making any new charges to this card. And once you’ve paid down that card, apply your payments to the next most expensive card.
4. Or, focus on the smallest balance: While paying down your card with the highest interest rate will save you more money, tackling your card with the smallest balance first is an easy win that can encourage you to continue paying down your debt.
5. Use your savings: Saving for a rainy day is important but if your savings account is only paying you 1% interest and your credit cards are charging you 18%, you’re better off using your savings (or a portion of them) to pay down your credit card.
6. Back to cash: We’ve all gotten used to pulling out a credit card for anything we buy but doing so makes it easier to overspend. Consider withdrawing a set amount of cash each week to cover the amount of spending that’s absolutely necessary. When the cash runs out, you’ll be more conscious of overspending.
7. Refinance your mortgage: Aside from your credit cards, your mortgage is probably your biggest household expense. Speak to your mortgage lender or a mortgage broker to see whether it’s worth switching to a lower-interest mortgage or even consolidating your credit card debts into your mortgage. But remember, this is only a good idea if you change your spending habits and don’t rack up your credit card debit again.
Which brings us to perhaps the most important thing you can do to reduce your credit card debt – understand what you’re spending on and create a monthly budget. If you’re truly living within your means, you can make credit card debt and high interest payments a thing of the past.
Have you successfully gotten yourself out of credit card debt? Share your strategies now in the Shop Talk blog community forum.
Did you know: Celebrate!
Being strict with yourself can help you pay off your credit card bills but remember to treat yourself once in a while – after all, life’s still about living!