In a Nutshell
When you are trying to escape from a credit card debt spiral, you need two things in equal measure. First, planning and then perseverance as you will need both in ready supply to successfully reach your goal.
There are no shortcuts in defeating a mountain of card debt. It’s a tough path that requires both time and determination. But if you are kitted out with the right tools and knowledge, the route to the summit of your debt mountain may not be as hard-going as you imagined. On the contrary, it may even prove to be comparatively smooth. Remember, too, you don’t need to tackle your debt mountain solo. Instead, a credit counselor may well prove a very helpful ally in conquering your objective.
Of course, no two routes to debt conquering are identical. Indeed, a debt reduction strategy that works for one individual may not work for others. And unless you stick strictly to the plan, it’s going to be difficult to make progress in reducing your debt level.
If you have zero clue about tackling your credit card bills, we have some great advice on the measures to take. Admittedly, this advice does not come with any warranties or guarantees. What it will do, though, is signpost you in the proper direction.
The following 7 step plan to beat credit card debt is a good template for success. Moreover, it’s an excellent starting point on which to set a course for debt freedom.
However, like most things in life, success is not guaranteed. You can, though, massively improve your chances by sticking with the program. It’s up to you to do the heavy lifting; no one else can.
1. Properly assess the state of your finances
2. Prioritize what you spend each month
3. Draw up a realistic budget
4. Free up cash
5. Develop a strategy
6. Don’t put off seeking help if you require it
7. Strive to adopt better financial habits
The first step in your long march to freedom from credit card debt is to assess the state of your financial affairs properly. Be honest; you are only cheating yourself otherwise.
Draw up an accurate list of every cent you owe, including all your credit card debt and your other routine monthly bills. Don’t forget any outgoings. In this review of overall debt, including the total outstanding and the APR (annual percentage rate) interest each credit card is charging you.
By examining each card balance and APR, you can decide how you wish to approach your debt reduction. In some instances, you may wish to address the debt attracting the steepest interest rates first. In other instances, you may wish to give yourself a psychological reward by first paying off the cards with the lower balances.
Choose whatever feels right, logic (steepest interest rates first), or the idea that it’s best to break the debt down into achievable chunks. Ultimately, it is choosing the right path for you as an individual.
The next step is to compare your debt and monthly outgoings with your income. Again, it would be a wise move if you were realistic and factor in such monthly expenses as rent or mortgage payments, grocery bills, outstanding loan debts, and your credit card balances.
Regarding your income, consider your salary and other things that generate money, such as interest on any savings, etc.
When charting out how to banish your credit card debt, be sure you have the basics correct. Finance companies that specialize in debt resettlement point out these basics include:
● and clothing.
Once you have done this, be sure you always pay at least the minimum payment on your secured debts. These debts are often taken out against an asset like your home or car. The asset is also frequently referred to as ‘collateral.’
If you don’t keep on top of payments on a secured debt, you stand to lose the asset you used to support the loan.
The next step is to reduce the overall size of your credit card debt rather than merely paying the interest. Again, there are online debt repayment calculators that can help. They are a good starting point and will help you remain on track. First, enter the balance outstanding and the applicable interest rate. Next, type in the monthly payment you anticipate or the payment time frame you want. Then the calculator crunches the numbers for you.
Also, it’s a smart move to focus on any outstanding student loan debt. This focus is required because the backers of the student loan, typically the federal government, can financially punish you if you default on a student loan repayment. For example, they can go after your salary, any tax refunds you may be eligible for, and Social Security cash you may receive.
If you have a private student loan company, the lender can’t pursue your salary or Social Security benefits. However, they can take legal action to collect your outstanding student loan debt.
If you can manage without using a credit card, it’s best to do so when you are working toward reducing your debt. Instead, pay for items with cash or a debit card as it’s easier to keep track of compared to a credit card. The very last thing you need is to rack up even more debt while trying to get on top of your debt problem. Continuing to use credit cards is very likely only going to prove a frustrating experience.
Most important of all, though, is always to ensure you are paying at least the bare minimum toward all your outstanding debts.
Transferring your balance to another card
A great way to help settle your debt is via a balance transfer. Instead of paying interest on your credit card bill, it may prove possible to transfer your high-interest debt onto a single credit via a balance transfer.
Several credit cards allow this type of balance transfer and also offer zero percent interest on your balance for a limited period. This transfer gives you some breathing space to work on chipping away at the outstanding debt amount rather than merely paying interest. It’s also an excellent method to reduce how long it takes to settle your debt.
As soon as you have a grip on how to prioritize your debts, the next move is to draw up a budget. Having this and sticking to it will help you keep track of your spending. It will also help you obtain a better grasp of how to shrink credit card debt.
Those that have had the first-hand experience of tackling a debt mountain say the secret of success takes self-discipline, persistence, and a rock-solid budget. However, experts agree that these tactics undoubtedly help to shift the financial burden of credit card debt.
Many online tools can help, including Mint and You Need A Budget. These can help you set a budget and ensure you stick with it as far as possible each month. There is also a heap of additional online resources to learn more about budgeting and good financial habits.
When you have a realistic budget in place, this will help inform your decision on the best strategy to reduce your credit card debt. (We go into this aspect later in more detail and explain how to select the best strategy.)
While you are diligently adhering to your budget, you should also find time to look at where you can trim back on expenses and generate more cash.
Ditching your cable TV subscription and canceling the gym membership you rarely use are just two means of pruning back your expenses. Take a sheet of notepaper and divide it into two columns. One should be headed luxuries and the other column necessities. This expenditure editing will help you decide which things in life you can go without and still survive.
Side hustles are an increasingly common way to earn some extra money. Have a good think about how to generate some cash by using your skills and/or hobbies as an additional revenue stream. Or maybe you can seek out overtime at your day job.
Tempting as it may be, remember that this extra income is only to be spent on reducing your credit card debt. It is not cash to help you add to your already extensive sneaker collection or to go out clubbing. So keep your proverbial eye on the prize of debt freedom.
There are three curiously snow-related strategies for reducing debt:
● the avalanche method
● the snowball method
● and finally, the blizzard method.
Here is how each of them works.
The avalanche method
This method, which is preferred by many, involves settling your outstanding balances that attract the highest interest first. The objective of this method is to eliminate your card debt as fast and as efficiently as possible.
Here is a typical example of how it works in practice.
You pay the minimum payments on all of your outstanding balances except for the card with the highest APR rate. For this card, pay the minimum required plus any spare cash you can afford to drive down the principal.
Repeat this routine each month until the debt on the highest APR card has been settled in full. Then, apply the same monthly payment level but target the second steepest APR card in the same way. Don’t be tempted to ease up on your efforts. You are moving in the right direction so keep going.
By relentlessly paying off the card with the highest interest rate first, you could, in the long run, be saving hundreds or even thousands of dollars in interest charges. So, if saving money sounds attractive, make it your top priority and stick with the strategy until you have erased all your credit card debt.
The snowball method
By contrast, the snowball method starts small and grows. The goal with the snowball method is to pay off the card carrying the smallest outstanding balance and progress upward from there.
Similar to the avalanche method, you pay the minimum owed on all your card accounts each month. But any spare cash you have left over is used to help pay off what’s outstanding on the card with the smallest balance amount.
After you settle all that’s owed on that card, pay any extra money you can afford into the card that previously had the second smallest balance. This method may appeal to many people as it involves small attainable goals to boost your confidence and help you see swift progress in conquering all your outstanding card debt.
The snowball is a great way to develop positive financial habits and sets you on the right course to debt freedom.
The blizzard method
The third strategy for paying off debt is referred to as the blizzard method. It is a combination of snowball (settling the smallest balance) and avalanche (paying down the balance on your highest interest rate card).
Much of debt repayment is wrapped up in the psychology of the debtor. The avalanche method saves the largest amount of money. But often, people prefer the quick wins offered by the snowball method. The blizzard method is a combo of both; you obtain the positive emotional boost and see that you are saving money via the avalanche.
Whatever your strategy of choice, reducing your credit card debt will ultimately improve your credit score. This credit rating boost occurs because payment history, including how frequently you make on-time payments to settle debt, is one of the most crucial factors influencing your credit rating.
Being in debt is undeniably stressful. Unfortunately, it’s all too easy to feel like you are being overwhelmed.
If this is the case, it is probably time to make an appointment with a credit counselor. Agencies have teams of experts on hand to help you get back on track financially. The job of a credit counselor is to work with you to reset your financial affairs. They will offer financial tools and resources to help you regain control of your finances.
Find an agency that provides face-to-face services as these work the best. Certainly, that is the recommendation of the Federal Trade Commission. You could also ask family and friends if they know of any reputable agencies, or you may wish instead to enquire at your bank.
Once you have completed your preliminary research, check on the trustworthiness of the agencies you have identified. You can do so by contacting the state’s attorney general’s office or getting in touch with your local consumer protection organization.
Remember that in coping with debt, you are not alone. And you don’t have to do it solo. There are many resources available that can help you bring stability to your financial affairs.
Getting out of credit card debt is an achievement. But, an even bigger accomplishment is ensuring you don’t go back down the same path in the future. If you don’t reset your spending habits, you will likely end up in credit card debt once again.
The secret, which barely needs repetition, is you need to know the difference between what you need and what you want. Two definite needs are housing and food. So too, are paying your bills on time and setting some emergency cash aside for a rainy day. It is stuff like this that must have the priority in your spending, not expensive nights out, designer clothes, flashy holidays, new cars, and so on.
It will take a certain degree of self-discipline to stick rigidly to the budget you have set. But it will be worthwhile in the long run. The trick is always to keep close tabs on your spending and income. If you forget the fundamentals of budgeting, you are almost certainly going to get back into debt.
Clawing your way out of debt with credit cards does not happen overnight. Unfortunately, there are no shortcuts, no quick fixes, or magic bullets to make it go away. If your debt mountain took a long time to be created, chances are it’s going to take a long time to become debt-free.
Stick with your budget and rein in your spending. But the most important factor of all in reducing credit card debt is to be sure to hit all your payments on time every month.
Can I get jail time for not paying off credit card debt?
In most cases, you are highly unlikely to wind up in jail for not paying off your debts. While debt is anxiety-inducing, you can relax about being arrested or going to jail merely for being overdue on credit card repayments.
What will happen if I don’t pay off my credit card debt?
You can expect to pay late payment fees, see your interest rate increased, and have a negative effect on your credit rating. If you consistently miss making repayments, your card is likely to be frozen sooner or later. The debt may also be sold off to a collection agency to pursue. If you are still unable to pay, the debt agency has the power to sue you in court and have your salary garnished.
What is meant by having your wages garnished?
According to the US Dept. of Labor, it is a legal process where a person’s income is withheld by their employer for the settlement of a debt.
Does the USA have the highest level of credit card debt?
Yes, the US is burdened with the highest average level of credit card debt in the world. According to worldwide debt statistics, the average credit card in the USA is around $6,270.
Is it possible to avoid paying off credit card debt?
In the long run, no. There will always be consequences of one form or another.
The best course is to contact a non-profit credit counseling agency to help you set up your debt management. You pay the agency an agreed sum every month that goes towards paying off your debt. The agency will work to get you a lower interest rate or a lower bill. In some instances, they may even help to get the debt canceled.
Isn’t there a statute of limitations for credit card bills?
Yes, there is. The law limits the time frame in which lenders and debt collection agencies can sue consumers for failure to pay. The limitation varies by state. It can be as little as three years in some states and as much as ten years in others. Most states lie somewhere in the middle.
Is the statute of limitations a ‘Get of jail free card?’
No. The aim of the statute of limitations is to prevent crediting pursuing consumers through the courts long after evidence of what’s owed has vanished. Though the statute of limitations may expire eventually, there are still consequences. The money is still owed, and debt agencies are still entitled to pursue you and file negative reports about you to credit rating companies.
How much credit card debt is normal?
It depends on who you ask. Typically, lenders will say an acceptable debt-to-income ratio is 36%. However, many independent financial advisors say carrying more than 35% is too much debt.
During the COVID-19 pandemic, its tragic human cost, and the massive hit on the economy, many people took on more credit card debt.
If you were one of these people, there are plenty of others in the same boat. Today many are facing new levels of indebtedness that are unprecedented for them. Consequently, there are many people facing debt issues for the first time ever.
The US Consumer Financial Protection Bureau has compiled a helpful advice page.