These five steps could help you recover from a serious financial mistake with your credit cards.
Finding yourself deeply in credit card debt can be a frightening experience. With high interest rates and low minimum payments imposed by credit card companies, it can take forever to get out of debt. You could also end up spending a fortune to cover interest charges, and it can be difficult to make all of your payments.
The good news is that there are ways to manage your credit card debt more effectively so that you can pay it off ASAP and get back on track by using your money to meet other financial goals. . Here are some techniques to try if you’ve got yourself deeply into debt on your credit card and want to remedy the situation.
1. Make a repayment plan
It is much easier to feel in control of your debt if you have a plan to pay it off. To make your plan:
- Make a list of all your credit card balances, including the total owed and the interest rate.
- Calculate the minimum monthly payments and the total amounts owed.
- Decide how much more you can spend on paying off your debt faster.
- Choose which debt to pay off first, so that you can send extra money on that debt while paying only the minimum on the others. For most people, the best approach is to choose the card with the highest interest rate, then switch to the card with the next highest rate, and so on. Some people prefer to choose the card with the lowest balance so that they can pay it off faster and stay motivated by earning quick wins.
When you have a plan of action to settle your debt, you are more likely to be successful in paying off your creditors on a timely basis. And having a plan means you’ll feel more in charge of managing your financial future.
2. Consider refinancing your credit card debt
The high interest rates charged by credit card companies make it difficult to pay off your credit card debt because so much of your money is wasted on paying interest.
Refinancing could solve this problem. If you refinance, you get a new loan and pay off the existing high interest debt. You can use a personal loan to consolidate debt or use a credit card to transfer the balance and transfer multiple balances to it.
Getting rid of a lot of small debts and ending up with a bigger one at a lower rate can make paying off that much easier. You’ll only have one monthly payment to make, and you won’t have to decide in which order to pay off your debt. You can also reduce your total monthly payments and ensure that more of each goes to principal rather than interest.
3. Rework your budget
Putting extra money into paying off your credit card can help you get out of the hole faster. So, for a while, consider paying only the necessities and fixed costs like your mortgage, car loan, and groceries. Beyond that, spend as much money as you can on paying down the debt.
By reworking your budget to focus on sending as much money as possible to your creditors, you can pay off your balance much faster than if you just sent smaller payments each month.
4. Consider a second temporary job
Working part-time could earn extra money to help increase your repayment efforts. Since this is money outside of your regular income, you can use the entire amount to pay off your debt so that you can pay off your principal much faster.
5. Talk to your creditors
Finally, you should discuss your options with your creditors if you are seriously overwhelmed and cannot afford the minimums, or if you think you will never be able to pay your full balance.
Creditors may be willing to allow you to work out a repayment plan or settle debt for a lump sum payment that is less than what you currently owe. Taking this step of seeking help from creditors can be difficult as it can often damage your credit score. But if you are having a lot of financial hardship due to your credit card debt amount, finding a way to pay off less may be your best and your only choice.
Be sure to carefully consider each of these five tips and choose the right one for you, given your debt level and the possibility of paying it off in a reasonable time without compromising other important goals.