How to get out of credit card debt
Practical and simple steps you can take to pay off your credit card balance for good.
If you’re struggling to deal with credit card debt, following a debt relief plan can help get you back on the path to financial freedom. If you need a little more help than that, there are free services you can access for personalized assistance and advice.
Since there’s plenty of advice out there, you’ll want to make sure it’s reputable and realistic advice. If you’re looking for some steps to take to start paying off your credit card debt, we’ve got seven simple ways below.
These steps are designed to form a path to financial freedom – but even following them one at a time will help you along the way.
- Avoid making new purchases. To get rid of your debt, you have to stop adding to it. Stop spending and start using that money to pay down your existing balance. Remember that your ultimate goal is to be debt free. You can treat yourself again once you’ve achieved that.
- Calculate the total amount of money you owe. It’s time to face the hard truth. This process might be painful, but it’s necessary and short-lived. Get all your account balances together and make a list. Include your debt amounts, the interest you’re paying on each of those amounts and any other charges. Add them up and take a good, long, hard look before you say your goodbyes.
- Create a budget. Start with your monthly income and figure out your essential monthly expenses. It’s time for tightening measures, so expenses should include only the bare necessities such as bills, groceries, gas and other living expenses you need. After establishing your income and expenses, it’s time to create a monthly schedule for repaying your debts. Work out how much you can pay off each month, but be realistic and leave breathing room for any emergencies.
- Set up automated payments. Using your budgeted monthly payment amount, set up automated payments to make sure you actually pay what you plan to. Set up the payments to come out of your bank account the day after you get paid — this is a sure-fire way to stay committed to your budget.
- Contact your credit card provider. If you’re feeling overwhelmed by your debt, it might be worthwhile to appeal to your credit card provider for a renegotiation of terms. Creditors are sometimes willing to allow a temporary postponement of payments or a slightly more favourable interest rate. Generally, they would rather give you a discount than risk you defaulting on your debt.
- Apply for a debt consolidation loan. A debt consolidation loan allows you to consolidate your debt into one monthly payment, often at a reduced interest rate. A consolidation loan can be a great way to save you money by paying less in interest, and can make paying back your debts more manageable. Debt consolidation loans are a good option if you plan to pay back your unsecured debt over several years.
- Consider a balance transfer credit card. Balance transfers can buy you time to repay your debt without incurring any more interest. This is because balance transfer credit cards offer low or 0% interest on your transferred debt for a promotional period of time – sometimes for as long as ten months. This might be exactly what you need to get rid of that debt more quickly, not to mention what you’ll save on interest fees that add hundreds– or thousands – of dollars to your debt every year.
Debt consolidation options
What if I have multiple credit card debts?
- Consolidate your debts onto one card. This follows on from step 7, where you can consider a balance transfer credit card to help with your debt consolidation. As well as giving you the opportunity to save money on otherwise expensive interest fees for a promotional period of time, you can also focus on only paying off one account. It could also help you save on additional charges, such as annual fees.
- Pay off the card with the highest interest rate first. You’ll save the most money by paying off the account with the highest interest rate first, followed by the account with the next highest interest rate and so on. Remember that you’ll still have to make minimum payments on your other cards during this time.
- Pay off the card with the lowest balance first. For some people, paying off the card with the lowest balance first is more motivating. This strategy will reduce the number of outstanding accounts sooner and cuts down on interest charges in the process. Of course, you’ll also need to make minimum payments on your other cards at the same time.
In addition to the steps above, following these tips can also prove very helpful:
- Switch to a card with a lower annual fee. This helps with reducing overall expenses, but can be doubly effective when combined with a balance transfer offer. If you want to minimize your outgoing card fees, you should consider a 0% balance transfer credit card with no annual fee.
- Cancel cards you don’t use. This tip will help save on annual fees and other charges that you may be paying on your cards. Also, this will help reduce the temptation to spend more money.
- Use your savings. Since your savings account could never offer an interest rate as high as the one you’re probably paying on your credit card, it follows that you should be using your savings to pay off your credit card debts. Use the cash under your bed, that rainy-day fund and every penny you can find to pay off those debts – because they’ll just swell up with interest if you don’t. Once they’re paid off, you’ll have more money you can put towards your savings to build them up again.
- Make weekly payments. Even though your statement comes monthly, credit card interest is actually calculated on a daily basis. This means that increasing the frequency of your payments can help to reduce the total interest you pay over time. Whenever you have an extra dollar, consider paying off more of your credit card balance.
- Seek professional help. Gaining control over your debts can be very difficult, especially at the beginning and it can be helpful to get professional advice. You can often find a range of free services online for debt management.
Credit card debt can often seem overwhelming, but by setting a budget, planning out your strategy and/or getting a debt consolidation loan or balance transfer card if you need one, you can get rid of credit card debt and make lasting, sustainable changes to your financial life. However, if after assessing your situation you still find yourself in a position where you don’t think you’ll be able to make meaningful progress toward paying off your debt, it may be time to consider debt relief as a solution.Back to top