By Christi Posner
Ready to pay off your credit card debts? Here are some practical ways you can quickly tackle your credit card debt and take your first real steps toward getting out of debt:
1. Getting Out of Credit Card Debt Requires Setting a Goal
...and you’re already on your way to getting out of credit card debt because you set that goal for yourself. Congrats on completing tip number 1 already!
It’s important to establish realistic goals for paying off your credit card debts as well as other consumer debts (lines of credit, vehicle loans). While it is easy to run up credit card balances in a short period of time, it will take time and self discipline to pay them off. Monitor your progress regularly to help you stay on track and motivated to reach your goals.
2. Getting Out of Debt Means Getting Rid of Cards
Sorry to say, but getting out of debt requires taking those credit cards out of your wallet so you’re not tempted to use them. Put your credit cards away until you have completely paid off the outstanding balances. Paying for your purchases with cash instead of credit will help you separate needs from wants, stay conscious about your spending, and make you think twice.
3. Prioritize Your Debts – Credit Cards, Loans, Mortgages and So On...
Make a complete list of all of your debts (outstanding balances, interest rates and charges) and prioritize them in order of importance. Mortgage payments and vehicle payments are typically at the top of most lists as these provide your shelter and transportation to get to and from your job.
Priorities will be different for everyone. Many people want to get rid of the highest interest rate debts first, and others have specific debts like payday loans they want to resolve first. You should decide the order in which you will pay back your debts.
4. Get Out of Debt Fast by Cutting Costs
One way to speed up your debt repayment and get out of debt fast is by reviewing your monthly expenses to look for opportunities to cut your costs. Start by tracking your spending for a two-week period to become aware of where your money goes. You may be surprised to learn that making your cup of coffee in the morning instead of buying a $3 specialty coffee will save you over $1,000 a year, or bagging a lunch instead of buying one can save you $1,800 a year. Check your spending for more ways to save. Also check out more spending tips here that can save you thousands.
5. The Key To Learning How to Get Out Of Debt is to Create a Monthly Spending Plan
To learn how to get out of debt and to stop borrowing from your credit cards again and again, you will need to create a monthly spending plan for your money. Not only will this ensure that you are living within your means (and not way above your means, which is where credit card debt comes from), but it will also give you a set timeline on when you can expect to get debt free.
Want some help creating a plan? We’ve created an interactive, budget calculator spreadsheet that will guide you through the process and make the idea of budgeting way less painful. This will help you stay within your budget and maximize your ability to pay down your debt.
6. Use the Most Popular, Best Way To Get Out of Credit Card Debt
A lot of people find that the best way to get out of credit card debt is to do so strategically. After paying debts that are on fixed monthly payments (mortgages, vehicle and term loans), make the minimum payments required on your credit cards with the lowest interest rates and maximize your payments on the credit cards with the highest interest rates. Once a debt is paid off, use this extra money to pay down the credit card with next highest interest rate. This will save you money and help you pay down your debt faster.
7. The Other Popular Way to Get Out Of Debt
The other popular method people are using to get out debt is by paying off credit cards with small balances first. Psychologically it feels and looks like you are really making progress - which you are. Once paid, cancel and cut up the credit cards you've paid off. Most people only require one major credit card and perhaps one retail credit card with savings incentives during special sales events.
8. Look for Opportunities to Pay Down Debt Faster
Many people regularly contribute to a savings plan, which is great, but consider that this is money that could help you pay down debt faster. Once you have established an emergency fund and are saving for irregular expenses, you may want to consider suspending extra payments to Canada Savings Bonds or other savings accounts until you have paid off your debt. This is especially beneficial to those who aren’t saving for something specific like vehicle repairs.
The money you save by paying down your debt faster will be substantially higher than the interest you will earn in a savings account. Also consider using income tax refunds, pay increases or other unexpected funds to pay down your debts. Click here for 10 more places you may be able to find more money.
9. Debt Consolidation Loans and Balance Transfers Are Great Ways to Get Out of Debt
When used correctly, debt consolidation loans and balance transfers can be excellent ways to get out of debt. Consider consolidating your debts with a consolidation loan or transferring your credit card balances to a low rate credit card. Carefully investigate the terms, conditions and any hidden fees as well as evaluating the overall interest savings you may realize.
Cut up and cancel your credit cards if you choose this option, otherwise you may be tempted to continue using your credit cards and further increase your debt load.
10. Refinance Your Mortgage
If you own your own home, you may have enough equity to consolidate all of your debts into your mortgage. If you don’t have much equity in your home, additional mortgage insurance costs may be expensive. Make sure you consider all of your options and seek advice from someone other than your lender (since they have a vested interest in getting you to choose this option).
Just like with a debt consolidation loan, when you consolidate debts into your mortgage you also need to create a budget that allocates money to savings. If you don’t, you’ll always be tempted to borrow more when “emergencies” arise. Repeatedly using your home as an ATM can set you up to face retirement with a lot of debt, no assets and no savings.
Ask a Non-Profit Credit Counselling Organization for Personalized Tips on Paying Off Credit Card Debts
If you are overwhelmed by your current financial circumstances or have difficulty maintaining a monthly budget, a non-profit credit counselling organization can offer you suggestions and tips on paying off credit card debts. They help with confidential and unbiased advice and information. Contact one to feel some debt relief today.
Here are some links to other resources you can use to learn how to get out of debt along with a lot more ideas you can use to reduce or eliminate your debts.
* A summarized version of this article is available as a PDF download for printing and offline reading.