Credit Card Debt Payoff Plan: Swipe Here
Credit card debt is so common in America. In fact, as of 2019, credit card debt was marked at over $1 trillion dollars. That is insane! The problem is that this amount will only grow as people fail to pay off the debt in full. Unfortunately, this debt is not just a monetary issue- it is actually a physical one.
I am not a doctor by any means, but there is research all over the place that shows stress leads to sickness, obesity, and- in some cases- death. I do not think anyone would argue the fact that debt is stressful. It makes me wonder just how much of the physical and medical condition of the American population is directly related to the debt that its citizens are buried under.
In my opinion, the best thing we can do for ourselves and our families is to dig ourselves out of debt. I know from personal experience how impossible it may seem, but I am happy to say that it is possible.
If you are ready to take action against your credit card debt instead of letting it control you, follow the steps in this guide to get a good start.
How Much Credit Card Debt Costs Yourself
Credit cards cost you in more ways than one. First, the interest and fees that come attached to them cost you. And they can add up to hundreds or even thousands of dollars over the lifetime of the credit card debt. That is why you need to be very careful when picking one. Below we listed out some of the options we trust, so that you can take a look at them and see which one would fit your needs best:
The cost of debt, in general, is a whole different ball game. All debt, especially credit card debt, leads to more of your money going out every single month. That is money that you can be spending on other things, including a new home, college savings for your kids, a new car, starting a new business, and more. Being in debt takes your money- that is, of course, if you are paying it.
When you are not paying it, the cost of debt is even worse. It can affect you in so many ways:
Higher insurance premiums
Not being able to get credit for a home or vehicles
Higher interest rates when you do get loans and credit cards
Even stop you from qualifying for some jobs
All in all, debt can have a very negative impact on your life. The sooner you can pay it off, the better. When you are getting ready to get out of debt, targeting your credit card debt first can have the highest impact.
Commit to Paying Off Credit Card Debt
Before you even start making a plan, you need to get serious about knocking out your credit card debt. If you do not commit to your plan, you probably will not make any progress. Treating it as a possibility as opposed to a must will likely keep you trapped in the credit card debt cycle. Instead, get serious. Treat it as a must and get started.
Making Your Credit Card Debt Payoff Plan
While your plan will not look like everyone else's, here are some basic steps to follow to get started:
Step 1: Gather Your Credit Card Debt Payoff Paperwork
You need to know what exactly you are facing and the specifics of the debt so that you can make a doable and effective plan. Gather your credit card statement and be sure that you have any information regarding interest rates and fees on hand.
Step 2: Put Them In A Workable Order
Next, it’s time to put your credit card debt in a workable order. When it comes to most debt, people normally list them by the balance due. While your credit card balance is important, the interest rate is possible the most important factor to consider. Below are some examples of credit card debt that we are going to work with. For the sake of simplicity, I am only listing three debts. You may have more or less, but these three examples will help you gain some understanding:
Credit Card 1:
Balance- $200
Interest rate- 25 percent
Credit Card 2:
Balance- $500
Interest rate- 18 percent
Credit Card 3:
Balance- $300
Interest rate- 22 percent
If you add $0 in additional charges, the following is what your interest will be for each card.
Credit Card 1: $50
Credit Card 2: $90
Credit Card 3: $66
Remember, these figures are only if you do not use any of your cards again. It also assumes that you are going to pay off your card each month. If you do not, interest is added to that interest and it grows exponentially. So, these are very conservative numbers.
Now, let’s take a look at these. Without any deeper considerations, it appears that Credit Card 2 costs you the most. On the surface, that is true. Consider this, though: Credit Card 1 and Credit Card 3 add up to a $500- the same balance as Credit Card 2. However, if you add together the monthly interest of #1 and #3, you are paying out $116 per month in interest for the two cards. That is $26 more per month than the $500 card.
Personally, if I were facing these three credit cards, I would pay off Credit Card 3 and Credit Card 1. I would save Credit Card 2 for last. This is simply because I would most likely save more this way over time.
When you are putting your credit card debt into a payoff plan, it is important to consider all of these factors. It is not just about saving money this month. Your best option is to save the most you can over time, so seriously consider how much the different cards will cost you over time.
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Step 3: Put Them In A Planner
You want to be organized. While there is nothing wrong with listing your debts on paper or in a notebook, it is always a wise idea to have a backup. In my home, I have four kids of my own, somewhere around 10 cats and kittens (I have lost count- I’m viewed as the rescue lady, so I end up with all of them), and young nephews who love to hang out with me.
Needless to say, no matter how hard I work to protect things, my stuff always ends up on the floor- and 75 percent of the time it is ruined. I learned a long time ago that if I do not back my stuff up digitally, I am in trouble. Even if you do not have a full house as I do, it only takes one little spill or coffee cup stain to ruin a beautifully organized piece of paper.
Instead of putting a ton of hard work into organizing your credit card debt and finding a headache when it is ruined, back it up with a digital debt payoff planner of some sort. You can do this with an Excel spreadsheet, a Word document, or an app created for this sort of thing. The benefit of some of the apps is that they can show you progress through a chart as you make moves.
Step 4: Decide Where to Start
You have put your credit card debt into a workable list and- hopefully- in a planner. Now, it’s time to decide where to start. Yes, you can go straight along with your list, which is often the best option. However, sometimes there are other circumstances that can influence your decision.
For instance, if you are getting a pretty large check soon that you can spend half of toward debt, you might choose different debts to begin with. Maybe one of your cards is about to increase in interest rate. Even if it is the smallest interest rate right now, the change may make it the highest interest soon. Also, you may have received a settlement offer to pay one of your debts off for a much smaller amount.
Regardless, there may be some reason you see fit to deviate from your original list. This is completely up to you. Just be sure that you consider all of the factors associated with this decision before making a final decision.
Step 5: Talk to Your Creditor
Even if you have not received a settlement offer for a credit card debt does not mean that you cannot get one. This is especially true if you are already behind on payments. When you decide where to start, call the creditor and ask if you can make some type of settlement arrangement.
I did this just this week with an old debt and ended up saving 50 percent. My results will not necessarily be the same as yours, but it never ever hurts to try. Give them a call to see what they can do. If the card is still active, you may also be able to negotiate a smaller interest rate. You never know until you ask.
Step 6: Budget Your Payments
If you are lucky, your debts are either small enough or you are getting a large lump sum of some sort and can pay off all of your debts at once. Hey, here’s to dreaming! If you are not one of those fortunate ones, you will probably have to make a step-by-step budget to knock your credit card debt out.
You start by taking a look at your budget. How much can you afford to put toward debt at this time? It needs to be a large enough amount that compound interest is not going to negate your progress. If the amount that you can comfortably afford is not enough to make a difference, you will need to find a way to supplement your income- side hustles, second jobs, and so on can go a long way.
After you decide on your monthly amount, add it to your budget. You need a set amount because, otherwise, you may take your mission lightly. Find a way to work that amount into your budget by any means necessary.
Step 7: Prepare Your Motivation
Let’s just be honest, we all need motivation. We can start out with the best of intentions but quickly get off track if we are not motivated. We are human- it can happen very, very easily. Determine some sort of motivation. For some people, a simple progress chart will suffice. For others, the motivation needs to be larger.
Step 8: Consider Drastic Measures
Sometimes, paying a little every month out of your regular monthly income is just not enough. If it is going to take you a year to pay off $1000 in credit card debt, you might end up working against yourself with all of the interest you will pay. In cases such as these, it may be better to consider drastic measures in the form of a debt consolidation loan.
Yes, getting a loan to pay off debt- it may sound crazy, but it does work. Let’s say you take out a $1,000 personal installment loan at a 10 percent interest rate. That means that you will repay a total of $1100. The interest is not compounded, so what you see is pretty much what you get.
The better part is that with a personal installment loan, you can get a pretty good repayment term. In some cases, you can get years to pay it off. This is how it breaks down: You get the loan, pay off all of your credit card debt at once, repay the loan over time, and save yourself a ton in interest. Even if the interest rate is a little high, the interest is usually calculated at the beginning of the loan and fixed into your monthly payments. It means that- almost always- you will pay much less over the life of the loan than you will pay on credit cards.
Step 9: After It’s Paid
After you have repaid your credit card debt, there are a couple of things to do and not do:
Do not close the card
If you close the account, it will have a negative impact on your credit score. As I can assume a big part of the reason to pay off the credit card debt was to improve your credit, closing the accounts will negate the work you put in. Part of your credit score depends on the amount of credit you have available to you. Closing your credit card accounts decreases your available credit.
Try not to use the card
While you do not want to close the account, you also do not want to land back in credit card debt. Try your best not to use the card unless it is an emergency- an actual emergency. If you are concerned that keeping the card may be too tempting, there are some steps you can take:
Cut the card up and throw it away- Just because you have the account does not mean you have to use it.
Freeze it- Literally. Put it in a bowl of water and freeze the card. It is really hard to make impulse decisions when you have to spend hours defrosting the card.
Lock it up- Get a security box at your bank and put the card in it. That way if you want to use the card, you have to work to get to it. At the same time, it is still pretty accessible if you actually do need it.
Conclusion
Being in credit card debt is not fun for anyone. It can have a negative impact on you physically, financially, and emotionally. The sooner you can get out of it, the better. Take some time today to make a credit card debt payoff plan and get to work as soon as you can.