It’s the new year so its time to get of your credit card debt for good and stop carring balances from month to month. If you want to become debt free then you will need to have a plan in place and be ready to be disciplined with your finances.
Here are some new year tips to tackle your credit card debt and become debt free.
Put It All on One Plastic
If you have multiple credit cards and you are carrying debt on all of these then one thing that you can do is consolidate the credit card debt.
You are able to consolidate in a few ways, but the best option would be to find a credit card that has a 0% interest rate for a certain period of time. The payment that you make each month will then go towards the principal amount and not the interest. Also, moving your credit card debt to one card will allow you to pay just one monthly repayment instead of having to juggle multiple payments and interest rates.
Keep in mind with these type of cards that the 0% interest period will end and once it has you will start to pay interest. This will only really work if you are able to clear your debt before the promotional period ends.
Another option that you can consider is taking a personal loan to consolidate your credit card debt with. Personal loans usually have a lower interest rate and you will just have one lender and one repayment to make each month.
Tackle the Highest Interest First
If taking on a new credit card isn’t right for you then you do have other options. One strategy that many people use is to focus on the credit card that has the highest interest rate first. This method is called the debt avalanche method.
With this method, list all your credit cards on a piece of paper, in order of highest interest to the lowest. Each month make the budgeted repayment towards the highest interest card and the minimum payment on the others. Your repayment on the highest interest rate card should be more than the minimum and an amount that you are able to afford in your budget. Once the card with the highest interest rate is paid off, you can move onto the next card and so on. This will help you to limit the amount that you are paying in interest each month.
Another method is the opposite of the above and is called the debt snowball method. With this method, you will focus on the card that has the lowest balance first, so list all your cards from the lowest to the highest.
The idea here is to pay off credit card debt whilst maintaining momentum with small victories when a card is paid down.
However, if you use this method, you will be paying more in interest compared to the debt avalanche method, but many find this tactic motivating.
There are still more tips below, so keep reading to find out more…
Can You Get a Lower Rate?
If you have had your credit card for a long period of time, then it could be an idea to call your card issuer and see if you are able to get a lower rate.
Credit card companies are sometimes willing to work with you, especially if you have a track record of making timely repayments and have a good credit score. You can ask them to reduce your rate based on your past history.
You could also negotiate with your credit card issuer by showing them a competitors offer. If you find an offer that has a lower interest rate, then you can use this for negotiation.
How Did You Get Here?
Not only do you need to pay off your credit card debt, you also need to understand how you got into debt so that you can avoid being in the same position again in the future.
You will need to analyse your spending habits and behaviours that got you into debt and start making changes Credit cards can be valuable tools, but only when they are used correctly.
Can You Really Afford That?
Many of us will find ourselves in credit card debt because we didn’t stop and think about what we are buying. Before you make any purchases you need to take a step back and think if you are really able to afford it. If not, then you should be rethinking the purchase.
Never Miss a Payment
It is never a good idea to skip a credit card payment as this can be harmful to your credit score and you will just drive yourself further into debt because instead of having just the one payment to make, you will now have two and a possible late fee.
Know the Signs
You are able to avoid credit card debt in the future when you know the signs. One big sign is that you end up using your credit card for necessities like food, rent and clothing. Other signs include missing payments on one card so you can pay another, ignoring credit card statements and so on. These are signs that you are heading down the wrong path and you will need to take a step back and evaluate where you are financially.
As the new year unfolds tackling your credit card debt should be a priority and once your debt is paid off, you need to avoid heading down that road again.