First up, let me say that there’s no absolutely right or wrong way to tackle credit card debt. But working through any debt problem logically and with a step-by-step process can certainly help. So here’s a plan.
Step 1: Work Out How Much Debt You’re Actually In
Add up how much you owe on any credit cards and other store cards that you have, and write than number down on a sheet of paper. Seeing it in black and white can be a good wake-up call!
Step 2: Pay All Expenses From Your Cash Account Only
While you’re working out how to pay off your credit card debt, stop adding to it! Consider getting a debit card (which has the same benefits of a credit card in terms of bill payment except that you are using your own cash) or using cash to pay all your expenses in the interim.
Step 3: Pay Your Important Costs First
When your salary hits your bank account, use that money to pay all your necessary costs first. That means paying your mortgage or rent, buying groceries, paying utilities such as electricity and phone and putting petrol in your car. Otherwise, it can be easy to spend your cash on more interesting things – and have nothing left over for those bills that you have to pay.
Following this strategy will reduce the chance that you will get caught short and have to out things on credit card, cause more problems down the track. Setting up automatic payments using your lending provider can limit the impact that buying non-necessary purchases has on your credit card.
Step 4: Do A Written Budget
Knowing what expenses you need to pay over the course of a year helps to ensure that you have savings put aside for those big occasional costs (such as car registration and insurance policies). That way, you can try to prevent being caught short.
Step 5: Minimise the Interest on Your Debt
If you have a big credit card debt, chances are you also have a big credit card interest cost.
Just be careful to read the terms and conditions of things like balance transfer offers carefully, and to check for any additional fees.
Step 6: Set Up a Repayment Plan
Whether you switch credit cards or not, set up a regular repayment plan to get your debt paid off in a timely manner.
If you have done your written budget, you’ll know how much cash you have left over to put towards your credit card debt each month. Don’t get discouraged: the debt probably took a long time to build up and it may well take a long time to pay off. Every six months or so, as you pay the debt down, compare credit card offers, review your interest rate and see whether there would be a cheaper option available to you.
Step 7: Ask for Financial Help
Very importantly, don’t hesitate to ask an independent third party to sit down with you and help you work through all of the above.
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