by Scott Hannah
Q: I have no trouble charging stuff on my credit cards, but paying them down, never mind off, I seem to be going nowhere fast. I feel like I’m missing something, some inside scoop no one ever told me. My boyfriend gives me a really hard time about it. He keeps careful track of what he charges and pays his credit card off every month. I really like this guy and he’s said a few things that make me wonder if our relationship will last if I don’t get my debt and, I guess, my spending, under control. I think I earn enough to pay my credit cards off fairly quickly. Is there a best way you can suggest? ~Savannah
A: While it might seem like there’s a secret club that teaches you about the costs of credit and debt, the truth is that many people unfortunately learn the hard way. Credit card debt is among the most expensive kind of debt you can have. Not only are the interest rates high, but that ability to continuously use the cards with minimal payments perpetuates being in an endless cycle of debt. It is important to think about this as you look for the most effective ways to break out of the cycle and pay off the cards fast.
How you use your credit cards determines how fast you can pay them off. Keeping this in mind, here are three top tips that will matter to everyone:
1. You Must Have Savings to Pay Credit Cards Off Fast
The furthest thing from your mind when you’re putting every extra dollar towards your debts likely is stashing cash in your savings account. However, the reason we talked about the smartest moves for your savings account last week is that if you don’t save, it will take you even longer to pay off your credit card bills (if ever). Wonder why?
It comes down to how most of us use our credit cards. They are of course convenient, but they help us deal with emergency expenses and the wants in life that we don’t budget for. This means that we need to have cash on hand to pay for what we would normally use our credit cards for if we want to pay them off.
The fix? Take your credit cards out of your wallet and put them away in a safe place. For at least a few weeks only use your debit card or cash. This will force you to carefully weigh what you’re spending your money on. If you use your credit cards to pay for recurring bill payments, make a payment to your credit card from your bank account right after the card is charged, as if you had paid in cash.
You might see where this is going. When you’re out of money, you either need to wait until your next pay cheque, sell something to generate a lump sum of money, find ways to earn a little extra cash or cut all non-essential expenses until you have more money to spend.
2. Paying Credit Cards Off Means Not Relying on Them to Make Ends Meet
You might have become accustomed to relying on your credit cards to make ends meet. If you’ve built up a fair amount of debt on your credit cards and you use them for routine purchases, understand that you might not be able to give them up entirely all at once. When credit cards, overdraft protection or a line of credit have become what amounts to an extension of your pay cheque, it is much harder to break out of the cycle of debt.
What to do? Work on weaning yourself (and your budget) off of credit slowly. It will mean taking steps towards breaking the cycle of living pay cheque to pay cheque.
How to stop relying on credit to make ends meet: It takes a committed mindset and a little planning to make it happen. Start by gathering a few months of your financial information. Take a look at what you are spending your money on and how you are paying for your purchases. Then start outlining your budget. This free, interactive spreadsheet will help you juggle your numbers and help you look for what you might want to adjust.
3. There’s No Single Best Strategy That Works for Everyone Every Time
Money management strategies are as individual as the people who create them. This means that there are many different ways to manage money and pay off debt, with no one best strategy that works for everyone all the time. While at first you might think this is a downfall, it’s actually a very positive thing – it means you can do what works best for you!
How to choose? When it comes to deciding which method of debt repayment is best for you, think about what motivates you. Do you need to see success quickly to stay motivated? Then paying off your smallest balance owing first might be a good idea. Some people call this the snowball method. If you’re motivated by logic and have a need to pay off your debt that’s charging you the highest interest rate, then the avalanche method might be best for you.
Maybe you’re like some people who do better with tips and tricks to keep yourself on track while you tackle all of your debts at the same time. That will mean a commitment to spending less than you earn and making more frugal spending and budgeting choices. Here are 12 of the most effective ways to pay debt down fast to get you started.
What to do next: The next thing to do is to get started. Doing nothing will not get you ahead; in fact, it might put you further into debt. Surround yourself with people who will encourage you to stay on track with your goals. And if you need help with getting started, navigating the inevitable bumps in the road or finding a better way to pay off your debts, give us a call.
What Happens to Points or Miles When You’re in Debt?
Canadians love their loyalty and credit card points. Retailers and credit card companies know this. However, what many Canadians don’t realize is that for most credit card accounts, if you’re not in good standing, you are not able to redeem your points. Find out what applies to your accounts by checking the terms and conditions carefully, or calling the customer service phone number on the back of your card or on your monthly statement.
The Bottom Line on Finding the Best Way to Pay Credit Card Debt Off
Whether you’ve got big balances to tackle or just small ones that you just can’t seem to get ahead of, setting a goal in 2019 to pay your credit card debt off, or down significantly, will be time well spent. Don’t spend another year looking back on what you wish you had done sooner. Being in debt stops you from getting ahead; the psychological, emotional and financial weight drags you down. Over the years, countless clients have mentioned how they feel like a weight has been lifted off their shoulders once they have a solid plan for what to do about their money and debt problems. Ask for help if you don’t know where to start, and do what works for you and your family. Have some patience with yourself and soon you’ll see your hard work pay off.