10 Ways to Get Out of Credit Card Debt
You have credit card debt, and apparently so does everyone else. According to the Federal Reserve, credit card debt in America is at an all-time high. In fact, there was a $20 billion increase in credit card debt from the first to second quarter of 2019. And per ValuePenguin, the average credit card debt per household looms at $9,333.
While there might have been circumstances out of your control that got you into debt — an accident, job loss or medical bills — the good news is that you can take action today to eliminate your debt entirely. Here are a handful of ways to crush your credit card debt.
1. Come Up with a Repayment Plan
Think of a repayment plan as your roadmap of sorts. This usually goes hand in hand with a payoff strategy. This plan details which debt you’ll want to focus on first. Equally important, how much can you reasonably afford to set aside toward paying off your debt? You’ll want to fold in your debt payments as another part of your budget.
When creating a repayment plan, it’s important to be realistic. Besides having a good idea exactly how much you can put toward debt, factor in your other financial commitments and goals. Are you saving for an emergency fund at the same time, or trying to put some of your take-home pay aside for retirement?
2. Use a Payoff Strategy
There are two common debt-payoff strategies. The first is the debt snowball method: paying off the credit card with the smallest balance first. Once that’s done, you then make headway on the card with the next-smallest balance.
The major perk to this strategy is that you enjoy early wins. Instead of, say, a year before that first credit card gets paid off, it might only take a few months. An early wins means you could feel pumped and stay motivated to pay off that debt.
Here’s how the snowball approach works: Let’s say you have three cards with balances of $200, $500 and $1,000. Every month you make an extra $100 in payments on your cards. With the debt snowball, you start with the card with the $200 balance, then move over to the card with the $500 one, and finish with the $1,000 card.
The other common payoff strategy is the debt avalanche method. With the debt avalanche, you start with the balance with the highest APR or interest rate, and work your way down. The major benefit of this is that you are saving money by paying less in overall interest fees.
So if you have three credit card balances and the APRs are 25%, 20% and 15%, you’d start with the credit card with 25% APR. Once that’s taken care of, you work on paying off the card with the 20% APR, and then 15%.
Regardless of what you owe, both methods will help you organize your debt and prioritize payments. With either method, you’ll be making the minimum payment on all your cards. That way, you continue to build your credit and won’t incur any late or missed payment fees. (For more tips on building and maintaining a solid credit score, check out resources on Rocket HQSM)
3. Devise a Debt Management Plan
You can also work with a non-profit credit counseling agency to help you organize your finances with what’s known as a debt management plan. The difference between a debt repayment plan and a debt management plan is that you typically work with the credit counseling agency, which acts as the go-between for you and the credit card companies.
What’s more, instead of making individual monthly payments for each card, you only need to make a single payment to the agency. The agency might also be able to lower your interest rate and, by spreading out your payments for a longer duration, the amount you pay each month.
4. Consider Debt Consolidation
When you consolidate your debt, you are combining all your credit card liability into a single loan. A personal loan can be a great option for consolidating your debt. By doing so, you can lower your monthly payments on a fixed timeline (often 36 or 60 months). Plus, you now make a single payment. However, a major drawback is that it could lengthen the duration of your loan and you might end up paying more in interest fees.
5. Lower Your Living Expenses
When you’re trying to aggressively erase debt, do everything you can to budget and cut back on your spending. By reducing your monthly expenses, you could free up cash, which could go toward your debt. Start with the big and easy wins. “Big wins” are when you cut back on major living expenses, like housing, transportation and food.
Among these three categories, food is a solid place to start because it doesn’t require drastic adjustments. Whereas you might need to move or get a roommate to save on housing, or go from a two-car to a one-car family, you can save on food by cooking more at home or by brown bagging your lunch a few times a week.
“Easy wins” are simple steps you can take to net long-term savings. For instance, if you make a call to your home internet provider and negotiate your bill so you save $20 a month, that’s $240 a year to go toward paying off your credit cards.
6. Find Ways to Earn More
In our age of the gig economy, there are plenty of ways to earn an extra buck through a side hustle. Depending on your interests and how much time you can devote to taking on additional jobs, you could earn money as a ride-share driver, dog walking or pet sitting, or doing food delivery. Or you could set up an online store, sell unwanted items on eBay or sell baked goods or crafts at a local farmer’s market.
You might also see if you can up your earning potential at your day job. See if you can work overtime or make a case to your boss for higher pay.
7. Put 'Bonus' Cash Toward Your Debt
Whenever you come across “extra” money, such as a cash gift for your birthday or a holiday, or get a bonus at work, put some of it toward paying off your credit card debt. Even 10% could help you make further headway!
8. Treat Yourself
Paying off your credit cards can be a long and hard journey. To avoid suffering from debt fatigue, be sure to treat yourself during the milestone moments. When you do hit a “checkpoint” in your repayment journey (i.e., for every $500 or $1,000 you pay off), celebrate in a small way. If you work for yourself, take the afternoon off and go on a hike or bike ride, or treat yourself to a lunch at your favorite Italian restaurant in town.
9. Team Up with an Accountability Partner
Partner up with someone who is also paying off debt. Commit to weekly or monthly check-ins to see how your progress is going. If things are getting in the way, your buddy can offer you encouragement and support. When you hit a checkpoint, consider celebrating together.
Along the same lines, my friend and I are pushing each other along with writing our first self-published books. We email each other word count updates and have looked over drafts and given each other valuable feedback. Knowing that someone is anticipating my updates gives me incentive to keep plugging along toward a finished product.
10. Don’t Take on More Credit Card Debt
Easier said than done, right? Piling on more credit card debt to your existing balance not only means it’ll take longer to dig your way out, but it also can be discouraging. If you’ve ever worked in retail, you know how deflating it gets spending an afternoon neatly folding shirts, only to have that same stack of shirts fall into a tangled mess an hour later.
Adding more to your balance will have the same effect. If you can, lock those credit cards away for now. Or see if you can momentarily “pause” your accounts so you don’t add to your balance.
While getting out of credit card debt is no easy feat, you have it in your power to make serious headway and get it paid off. By putting these steps into action, you can see the light at the end of your debt payoff journey and get that credit card balance down to zero.
*There is no affiliation between Rocket Loans and ValuePenguin. Rocket Loans does not vouch for or assume any responsibility for the content, accuracy, or completeness of material presented directly or indirectly in linked sites.
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What is Debt Consolidation (And Does it Make Sense for You)?
Debt consolidation is a strategy you can use to combine multiple debts into one easy-to-manage payment. Read our article on what it means to consolidate debt.