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How to Eliminate Credit Card Debt
As the credit card industry continues to grow by leaps and bounds, the numbers of those who are caught and trapped in cycles of debt continue to rise. However, one reason the situation continues to worsen is that many debtors are unwilling to face up to the fact that this is, indeed, a problem.
On a personal level, the amount owed can be so high that one might struggle to even admit it to themselves or others, much less to take responsibility for it and try to attack it head-on. Though it may be easier to simply drift along with the current and live in denial, the important thing to recognize here is that this is a real problem and it is personal.
If you are in credit card debt right now, realize that no one else will be able to take ownership or responsibility for it. Ignoring the situation will not make it go away. You need to go back to the basics and really evaluate your lifestyle. If you have already acknowledged what you owe and are ready to turn things around, the following are practical steps that you can take to confront and overcome this problem. Each is explained in detail below.
Addressing Your Credit Card Debt in 6 Steps
- Assess the situation.
- Establish a timeline.
- Begin to counteract.
- Rethink plastic.
- Control your spending.
- Manage your accounts.
1. Assess the Situation
You first need to make a clear assessment of the present situation you are in. You can do this by pulling up a spreadsheet and creating a table with the following fields:
- The name of the credit card
- The balance
- The monthly date when the credit card bill payment is due
- APR or Annual percentage rate
- Reward points on your card
- Redemption offers applicable to your reward points
- Remarks section
Use the information available from your credit card records to fill up this table. Identify the credit card that is the highest contributor to your debt. This will be the card that has the highest APR and the highest balance.
Make it your ambition to begin by eliminating the debt on this card first. Check if you can use reward points to offset some of the fees. Also, see if points can be exchanged for something that you usually procure in your day-to-day life. The less you are able to spend, the better.
Next, create another table that details offers available to you to help you eliminate the credit card debt problem. The options here can include debt consolidation services, but this requires some research, as each person's situation varies.
2. Establish a Timeline
Create a specific time frame for debt elimination. This will help you avoid procrastination and track your progress. For instance, calculate how long it would take you to clear off your debts if you increased your monthly payments over and above the pay minimum.
However, bear in mind that if the method you have chosen will have an adverse impact on your credit rating, it will not be worth pursuing regardless of whatever advantages the agencies provide. You will need to identify a method that both frees you of credit card debt and boosts your credit rating at the same time. Avoid sacrificing one for the other.
At the same time, if you do not know your credit score, you might be paying higher interests than you are supposed to. Or you may be eligible for much lower rates, which the companies do not want you to find out about. So, keep track of your credit score as you plan a clear deadline for your financial exit strategy.
3. Begin to Counteract
The following may seem obvious, but you would be surprised at how much time and how many opportunities we allow to pass us by simply because we do not develop the initiative and discipline to take control. Carve out time in your daily or weekly schedule to carry out research on means of increasing your current earnings.
Securing alternative sources of income will help you to move more swiftly in the quest to chip away at—and eventually eliminate—your debt. The goal of sourcing other streams of income aside from your day job is to create a compound financial counter effect.
Begin immediately. Remember, procrastination robs us of much more than time. Excuses will only make things worse. Don't wait until the charges have accumulated to heights that are completely beyond remedial action. This is a two-fold process. On one hand, you learn how to reduce your daily and monthly expenses, and on the other, you work on maximizing your income.
We will not delve into the details here, but for more information on how you can generate income from alternative sources, please check out my other articles on proven ways that you can increase your earnings.
4. Rethink Plastic
Switch to cash if you feel you cannot control the urge to swipe the card whenever you are away from home. Withdraw a fixed amount to spend for each particular month and then exclusively draw from that amount. Do this when you leave the house instead of carrying your credit cards with you. That way you will be able to monitor and control your spending habits better.
There is a psychological attachment associated with giving away actual hard-earned cash when paying for a good or service. The tangibility makes you think carefully before purchasing, as you realize you are actually parting with a measure of value.
Though swiping a credit card on a machine is efficient, it does not give you the same feel since you are spending from a much wider unseen pool that is made up of loans and interest charges.
If you have not been able to manage your finances without getting even deeper into credit card debt, then you need to make sure that you are determined to stop using credit cards altogether.
5. Control Your Spending
Managing your spending means controlling your money instead of letting your money controlling you. Leverage home economics. Start hunting for bargains and coupons and use all the consumer education you can find to save as much as possible.
Never spend more than you can afford to pay for. Make this a major rule in your life. One way to achieve this is to be secure in who you are as a person to the extent that you do not ever have to compare yourself with anyone else.
A great rule of thumb to remember is that you should never spend money that you do not have. The adage that needs to be strictly followed to the letter is living within your means. Always. Set a limit on how much you will spend from now on and stick to two-thirds of that limit. Discipline yourself to keep a budget that will enable you to plan your expenses in advance.
6. Manage Your Accounts
One way debtors try to handle the debt situation is by closing their credit card accounts. They do this in order to avoid paying the annual fee or increasing interest rates. Often, it is due to the fact that they've not been able to master their spending habits and therefore assume that the fewer cards they have in their possession, the better.
Despite the fact that all these are reasonable motives, you should not close your accounts before the debt is settled because this only leads to is your credit rating taking a massive hit. The key here is not to try and resolve one problem by creating a new one.
Account closure does not mean that the charges you have as a debtor automatically disappear. So, the only time you should close the account is if you have already paid it off completely or are in the process of transferring the balance to a different card.
Sometimes, coming out of debt becomes difficult due to periodical or recurring bills that have not been properly accounted for. For example, my previous telephone service provider slipped in an extra charge for mobile TV into the monthly fee that was being deducted from my account.
The fact that I was not using this feature at all did not preclude them from combining it with all the other costs in their package. Years later, I moved to a different country and I had a new telephone service provider. The new company had a very good flat rate, but within a short time, they were adding a fixed amount to my monthly bill, which was only meant to be charged contractually in year two.
In each of these cases, the companies owned up when I confronted them and admitted the error was on their part. They apologized and rectified matters. The point here is that I would not have noticed I was actually losing money every month had I not been examining my account statements and the bills.
In today's hectic schedules, if one is not conscious of the contracts they have entered into and the monthly transactions on their accounts, then all it takes is a little charge here and another trivial one there to lose massive amounts annually. This is due to the compound effect.
Check your account statements regularly and be abreast of all the conditions of the contracts you have entered into as well as the purchases you make. Stay on the alert and take initiative.
Michael Duncan (author) from Germany on January 04, 2020:
Much appreciated Dominique! Thank you for checking it out!
Dominique Cantin-Meaney from Montreal, Canada on January 04, 2020:
Definitely good advice and things to live by.