Credit card debt can put a serious drag on your net worth. That's not a surprise when you consider that most banks offer credit cards with double-digit interest rates. And they require monthly payments that only cover a portion of the outstanding balance. This way, they can make more money on the interest that is charged. It’s no wonder that many people struggle to figure out how to get out of credit card debt. In fact, 47% of Americans have credit card debt!
Instead of drowning in debt and being stressed about your finances learn how to get rid of credit card debt and taste what it's like to be debt-free!
8 Steps to help ditch credit card debt
1. Stop adding to your debt
Credit cards offer what is called a “revolving line of credit." The portion of credit you pay down every month is available for you to use for the next billing period. This can leave you in a never-ending cycle of charging purchases on your credit card, then making your scheduled minimum payment, followed by the additional spending of the available credit remaining.
Want to know how to get out of credit card debt easier? Stop charging additional purchases on your card and opt to spend cash instead. This way, even when you make your minimum payments, your balance won’t grow due to new charges.
2. Create a budget for your spending
Once you've committed to only making purchases when you have the money on hand, creating a budget is your next step on how to get out of credit card debt. Develop a spending plan each month that accounts for not only your savings, bills, and debt payments but also any other spending, like unplanned trips to Target. Don't add to your credit card debt for these things.
This spending plan will help you be more mindful of your purchases. It'll also provide a reference to compare what you planned to spend on your actual charges. Consider checking in on your planned versus actual spending, at least weekly. This will help you take the guesswork out of what adjustments you’ll need to make to stay on track. Then, you can avoid taking on additional credit card debt.
3. Build up a cash cushion
A lack of emergency savings or a financial buffer to cover an unexpected medical expense can contribute to credit card debt. That’s why it’s important to build up a cash cushion to avoid creating new debt when these situations come up. Start by establishing a separate account for an emergency fund of at least $1,000, as well as a stash of cash for car repair and other variable expenses.
If you are not sure how much you need to save for a cash buffer outside of your emergency fund, review your last twelve months of spending. Identify the total amount of unexpected expenses you charged on credit. Use this as your initial cash buffer goal.
4. Increase your cash flow to put more toward debt
Not keeping track of your cash flow—the amount of money moving in and out of your accounts—is a sure-fire way to rack up credit card debt when your cash runs low.
Set aside time to figure out how to increase your cash flow. Figure out how you can cut your budget and create more income. Consider starting a side hustle to earn more money to pay down your debt. With an increase in cash flow, you can scale back your reliance on credit cards and use the cash you free up to pay down your credit card debt.
5. Create a strategy to pay down the debt
You will eventually repay your credit card debt by making your minimum credit card payments. As long as you don’t add any more charges and your interest rate remains fixed, but it’s essential to create your own debt payoff strategy. Creating your own debt strategy will allow you to get out of debt sooner.
Start by reviewing the balance owed, the annual interest rate, and the minimum monthly payment due on each of your credit cards. Then, rank how much each debt is costing you each month. Use that information, prioritize your credit card debts, and layout a plan to pay them off.
A strategy to get out of credit card debt is to use the debt snowball method. This method has you pay off the card with the smallest balance first. Once that card is paid off, you apply that payment to the next balance, and so on.
You can also use the debt avalanche method, where you pay off the card with the highest interest rate first. Then you pay the next highest rate until they are all paid in full. Creating a debt payoff plan is how to get out of credit card debt successfully.
6. Automate your payments
Setting up automatic payments can help with your debt freedom journey. However, it's important you pay more than the minimum. Figure out your debt payoff plan, then budget your payments to be automatically transferred for that amount.
For example, let's say you have an additional $200 a month to pay towards your debt. Set up an automatic payment of $200 every month to knock down your balance fast. Automating your payments will prevent you from paying your bill late and keep you on track towards becoming debt-free!
7. Consolidate debt to a 0% credit card
Depending on your credit score and the amount of debt you have, you may want to consider transferring your credit card balance to a 0% APR card. However, be careful when taking this route because you'll need to pay off your balance before the promo rate expires. Otherwise, the rate can skyrocket, and you will end up paying costly interest on your debt. So, if the 0% APR offer is for 18 months, you need to figure out if you can afford to pay it off within that amount of time.
Also, if you do transfer your balance, commit to not using the existing card (or even close it!). The last thing you want to do is have another credit card lying around to tempt you to go shopping.
8. Change your money habits
To get rid of credit card debt for good you need to change your money habits. Bad money habits are detrimental to your finances and the leading cause of overspending. Credit cards can be good financial tools when used responsibly. However, if you find yourself shopping when you're bored or charging up your credit card to impress your friends, it's time to drop those bad habits and develop good ones. Changing your money habits will help you save more money, pay off debt, and lead to financial success.
You can get out of credit card debt
Dumping your credit card debt may seem like too tall a mountain to climb, but taking these steps can help you get out of credit card debt. Don't let your past mistakes hold you back! You can tackle your debt and live your best life being debt-free. Learn more about destroying your debt, increasing your income, and saving more money with our completely FREE financial courses and worksheets!