I am frequently inundated with emails and phone calls from individuals eager to discover how they can expedite the payment of their credit card debts, an occurrence that has only escalated with the intense economic downturn. Is there an efficient mechanism to achieve this? In my view, no magic formula exists; however, a set of practical strategies can substantially alleviate the burden. Here’s a rundown of the most intelligent, rapid, and secure methods to eradicate your credit card debt.
Mastering Budget Basics
Standing on the threshold of your financial past, you’d likely see that the massive debt mountain is birthed from a lack of budgetary management, barring emergencies. Draft an income/expenditure report and identify areas where savings can be achieved. Trim back unnecessary costs such as entertainment, luxurious shopping sprees, and so on. These measures will give you a clear indication of the available monthly budget at your disposal. Allocate this fund to your debts but ensure it’s not more than what you can afford. Also, make sure you keep enough aside for essentials like utility bills, unexpected car repairs, and mortgage payments.
Tackling High-Interest Debts
The dilemma faced by most individuals is whether to pay off the large debt first or the one with the highest interest rate. My counsel? Deal with the latter first, as the considerably high-interest rates consume a significant portion of your resources. Deal with this taxing debt, allowing you to pocket money that would have otherwise been sunk into high-interest payments. Once this is cleared, shift your focus onto the next highest one. There’s a school of thought that suggests clearing smallest balances first for psychological relief, but as a clever consumer, financial relief should be the priority which comes from eradicating high-interest debts. This will naturally lead to psychological upliftment.
Paying Frequently
If you’re in the habit of settling your credit card bills on a monthly basis, consider making fortnightly payments. This will result in more money being paid yearly since there are several months with more than four weeks. This can help reduce your principal debt, but it doesn’t mean you should only pay the minimum now. Maintain your initial payment amount and watch your debt decrease. This bimonthly payment system effectively reduces the average daily balance on which interest rates are calculated, thus slowly easing your overall financial strain.
Utilizing Savings Where Applicable
While this may seem counterintuitive to some, simultaneously maintaining a hefty credit card debt while nurturing a substantial savings account is essentially a self-defeating strategy. Although provisions for emergencies are an integral part of financial planning, struggling under the burden of enormous credit card debt is itself an emergency. You could greatly benefit from using your low-interest yielding savings to pay off your high-interest debts.
For instance, if you have $10,000 in a savings account at a 5% interest rate, but a credit card debt of an equivalent amount with a 15% interest rate, you could secure an instant 10% profit by settling the debt. You would then be free to redirect a larger portion of your monthly income back into your savings account while avoiding high-interest payments. However, it’s vital to retain a certain amount in your savings for dire circumstances.
Debt Consolidation Loans
As a last resort, you could explore obtaining a debt consolidation loan to eliminate your credit card debt completely. This only makes sense if you’re grappling with multiple loans on top of your credit card debt. This way, you consolidate all your debts into one loan, simplifying your debt management duties.
Author Bio:
Willie Rhoades, a finance analyst with a penchant for discussing debt consolidation and other personal finance-related topics, has written countless articles over the years offering actionable money-saving tips in his reports. He continues to inspire readers on smartasset.com.
