Most of us dream of a financially free life. A life with no credit card debt and no worries about different payments. But before we achieve that, we need to focus on the now.
Let’s reevaluate what are the closest roadblocks that are stopping us from our life goal.
And I’m pretty sure a roadblock that’s common to everyone would be debt.
I always believe there’s good debt and there’s also the bad debt. And in this post, we’ll be discussing one of the worst debts any of us could have which is credit card debt.
To be honest, even though I preach on everyone getting their personal finances together, I also slip up sometimes.
Last year around the month of May to June, I made the mistake of not tracking my finances properly, went to Sydney Australia, and overspent a couple of thousands. Not cool, Wina, not cool. ?
And that’s not it, I went out to take another 3 installment payments for products that I don’t need and should have paid in full. Thankfully, all of them have now been paid in full but it’s a hard lesson to learn.
Because of that experience, I’ve learned a couple of tricks so, in this post, I’ll list down the different ways to get rid of credit card debt – so we can all learn again together 🙂
18 Practical Ways To Get Rid Of Credit Card Debt
1. Ask For Lower Interest Rate
Right off the bat, ask your creditor for a lower interest rate. This is the first one I’d recommend because some people jump into different debt paying strategies but they tend to overlook this one.
Having a lower interest rate will make you save money in this process.
So muster up some confidence and make the call. Be confident but be polite. Remember, you’re not demanding them to lower the interest rate but you’re asking them a favor.
When you’re on the phone with the person who can lower your interest rate, mention that you want to keep doing business with them. Add some lines that you have a good credit score and they can check your payment history to see that you’ve been paying on time.
2. Debt Snowball Method
The debt snowball method was popularized by Dave Ramsey. This debt payment method tells you to focus on paying off small debt balances first while making the minimum payments on the other debts.
According to Dave, when you pay off debt from smallest to the largest balance, this will get you into a momentum of clearing out one debt after the other.
The snowball method can be done in 4 steps:
- Step 1: List down all your debts and then rank them from the smallest balance to the biggest.
- Step 2: Make the minimum payments on other debts except for the first one on your list.
- Step 3: Use your extra cash every month to add to the payment of the smallest debt.
- Step 4: Repeat these steps until you clear off all debts.
For example, you have 3 debts to pay,
Debt A: $1,000 with a minimum payment of $40
Debt B: $3,500 with a minimum payment of $70
Debt C: $4,000 with a minimum payment of $90
Now that you’ve ranked them, it’s time for step 2 – make the minimum payment for Debt B and C except for A.
Let’s say you have an extra $200 every month to add to your payment to Debt A. This will then make you pay $240 ($40 minimum payment + extra $200) directly to Debt A. In about 5 months, Debt A will now be cleared off.
Debt B is the next goal. Take that freed up $240 and pay it to Debt B. You will end up paying a total of $310 ($240 + $70 minimum payment). In about 11-12 months, you’ll be finally done with this debt.
Now take that $310 that you used to pay to Debt B and add that up the $90 minimum payment of Debt C, you’ll be paying $400 every month. You’ll pay off Debt C in about 10 months only.
And that’s how the debt snowball method is done.
The debt snowball method is widely used and recommended because not only does it help with your finances, but it’s also good for your mind. Because nothing feels better than crushing off debt and knowing you’re on a roll!
3. Debt Avalanche
The debt avalanche tells you to rank your debt from the highest interest rate to the lowest one and you’ll pay them in that order.
This method is almost the same with the debt snowball method but this time you’re not prioritizing the debt balance but the interest rate.
To do this method, you also need to follow 4 steps only:
- Step 1: Rank your debt from the highest interest rate to the lowest.
- Step 2: Keep paying the minimum on other debts except for the one with the highest interest rate.
- Step 3: Use your extra cash every month to add to the debt with the highest interest rate.
- Step 4: Repeat until all debts are cleared.
But which one is the best – Debt Avalanche or Debt Snowball?
That would really depend on you. Doing the debt avalanche method will allow you to save some money on interest charges since you’re paying first the debt with the highest interest charge. As for the debt snowball method, you’re getting a sense of satisfaction of clearing debt at a faster rate.
What’s important is both of these methods help you in paying your debt.
Harvard Business Review made a research on the best strategy to pay off credit card debt. And they found out that paying small debts first was a more efficient strategy.
Because according to Remi Trudel – one of the researchers, he said that paying down the smallest account and crushing off that debt gives out a powerful effect on people’s progress. It motivates them to continue paying one debt after the other.
Their research suggests that people get more motivated not just by focusing on one debt at a time but also prioritizing the smallest balances first.
4. Peer To Peer Lending
Peer to peer lending might be new to you so allow me to further explain what this is!
Peer to peer lending or P2P lending has been around for quite some time. People don’t usually hear about this because when they need financing, they automatically go to the bank.
But we all know what’s the common scenario when we approach the bank for a loan – it’s either we lack some requirements or their interest rates are just too high.
If there are people who are looking to loan money, there are people as well looking to loan out their money with a fair interest rate.
People with money have chosen this alternative as compared to placing their extra cash on bank deposits. Because nowadays banks give out low-interest rates which make people look for other ways to compound their money.
A p2p lending website connects people with money to people who are looking for money. And p2p is much more attractive for borrowers because the interest rates are often way lower compared to banks.
So if you’re looking to pay off your credit cards as fast as possible to also save money on its interest rate, you can consider p2p lending.
Investopedia recently released their best peer to peer lending for 2020. The post is a good starting point if you’re considering to avail p2p lending!
5. Leave Your Credit Card At Home
One way to solve a problem is to cut off the reason behind it. And in this case, you’re in this mess because you overused your credit card to the point that you can’t pay the entire balance anymore.
So a hack that you can do is to take those cards from your wallet and hide it in your homes. This will force you to go out and spend cash instead.
In a study done by Prelec and Simester on consumer transactions when it comes to high-value items, they found out that willingness-to-pay is increased when customers are instructed to use a credit card rather than cash.
To add to that study, in a 2008 paper in Journal of Experimental Psychology: Applied, researchers found out that the more transparent the transaction is (paying with money) the more it gives out a “pain of paying” compared to a transparent payment (using credit card), the easier it is for the consumer to keep on shopping.
What we can learn from this study is that there’s really a correlation between the amount of spending using a credit card vs spending with cash.
So if you’re looking not to add any more balance to your credit card, leave those credit cards at home!
6. Track Your Spending
Another way for you to get out of debt faster is by looking at your monthly expense sheet. The way I tracked my expenses was by using a spreadsheet! It’s convenient than writing all your expenses on a piece of paper.
You can use that spreadsheet to find where you can cut back on expenses. Maybe you have those subscriptions that you don’t always use. Or maybe you’ve been spending a lot on outside food.
Cutting back on some expenses will help you add more money to paying off your debt. The bigger the amount you’re paying, the faster that debt goes away.
7. Get A Side Job
Getting an extra job will allow you to have more money coming into your account. But sadly, at this point, most of that extra money will go to paying off your debt. That’s alright boo, we’ll get through this!
Since there’s a small probability that business owners are hiring because of this pandemic, you can always count on the internet for opportunities!
In my previous post, 6 Best Online Jobs From Home, I’ve written down the best online jobs that you can do. Plus, they’re probably the best paying jobs in the virtual space!
To add to that list, here are other in-demand jobs because of this pandemic:
Online tutor – Since schools are not yet open and students and parents are clueless when classes will resume, consider marketing yourself as an online tutor. If you’re great at certain subjects, for sure there will be parents looking to hire someone to teach their kids for at least an hour or two.
Online personal trainer – People aren’t looking to go and mingle at gyms any sooner. With the government always preaching social distancing and staying in our homes, more and more people are looking to work out and exercise in their homes instead.
Chat agents – Since small businesses are forced to bring their business online, most of the business owners are looking for chat agents to cater to their customer’s needs and questions.
If you’re looking to increase your cash flow, the internet has given us multiple opportunities to do so. It’s only up to you to capitalize on it!
8. Create A Budget
Budgeting will always be a tip when it comes to keeping your finances straight. Why? Because budgeting really works!
Create a monthly plan on where you should spend your money. Most people find themselves in debt because they lack the knowledge on how to budget wisely.
Having a budget and sticking to it will force you to live below your means and have some extra cash to help pay off some debts.
If you don’t know how to start a budget, you can check out NerdWallet’s Budgeting 101 and if you want an excel template to help you create a personal budget you can check out this interactive budget calculator.
Remember, a budget only works if you follow it!
9. Debt Consolidation
Debt consolidation is where multiple debts are combined into a single piece of debt.
Typically, this will have better payoff terms like lower interest rates and lower monthly payments.
If you’re looking for more favorable payment options, you can ask your bank or credit card company to give you this type of loan. Usually, these establishments will grant your request if you have a good payment history with them.
It’s important to note that debt consolidation loans don’t erase your original debts but it’s just transferred to a different type of loan.
When it comes to considering whether you should get a debt consolidation, you should get one if your credit card balance still increases every month and you’re starting to worry about how you can pay the balance.
10. Seek A Debt Management Plan
A debt management plan or a DMP will allow you to pay off your debts in a more affordable way. A DMP works for personal loans, credit card loans, overdrafts, bank loans, and home credit debts.
DMP’s are offered by credit counseling institutions. Their certified and trained counselors will be looking over your situation and discuss to you your different options – it can be a DMP or whatever they see fit for your situation.
If you decide to go for a debt management plan, your counselor will talk to your creditors and notify them of the plan. He or she will negotiate with your creditors on interest rates and payment schedules – which you will review as well and will be finalized after you approve of it.
Once you’re in the plan, the counseling institution will be the payer of your account. Every month your payment will be directed to the institution and they will be the one who will distribute your money to the creditors.
Things to be aware of when you’re enrolled in a DMP:
Fees – For some organizations that offer DMP, they will require an initial set up fee and a monthly fee. Fees may differ from different states and financial situations.
No Credit Cards – You may have to cut off any credit cards that you’ll include in the plan. This is probably a good thing since credit cards are the ones that got you in debt in the first place.
11. Live A Frugal Lifestyle
One of the reasons why we are in credit card debt is because we tend to live above our means.
I once had a mentality where I bring my credit card just in case I want to buy something I can’t afford at the moment – a bad consumer philosophy, right? But unfortunately, that’s how the majority of consumers think.
So once you clear out your debts, it’s time to live below your means. Living frugally doesn’t mean you should deprive yourself of the finer things in life. It’s just a lifestyle where you’re more economical and smart with your money!
In my post on How To Live A Frugal Lifestyle. I listed 8 ways on how you can do it – it’s easy and practical!
12. Apply For A Balance Transfer
A balance transfer allows you to transfer a debt with a high-interest rate to another card with a lower interest rate.
Different credit cards have different interest rates. And sometimes other credit cards might come with an introductory balance transfer offers like zero interest rate for the 1st year or 2 years.
But be careful when you’re considering this. Although it might look like a wise decision, make sure you’ll be able to pay your debt within the promotional period.
Because if you’re not able to pay during that time, the interest rate might be higher than your current one.
Questions to answer if a balance transfer is for you:
- Do you have a repayment strategy? This is important to address because if you do have a strategy on how you can repay your debt, then you will 100% maximize the lower interest rate offers. If you don’t have a strategy, you might end up paying with a higher interest rate.
- Do you have good credit? If you have good credit then most probably your creditor will offer the best deals that they can.
- How much do you need to transfer? For some balance transfer cards, there’s a limit on how much you can transfer. If you have a balance that’s too big to transfer, then you need to think it through if it’s a better decision to stick with your current one or should you apply for different cards.
13. Sell Your Old Belongings
Another reason why you’re in credit card debt is that you’ve overspent on some items. And now you’re stuck with things that you barely use.
Selling your old belongings is one good way to acquire more cash to pay off your debt. What I’d like to do is when I haven’t worn a piece of clothing for 3 months already, then it’s time for us to part ways. I need to sell them online!
You may even have gadgets that you barely use anymore – it’s just collecting dust and taking up space. Consider selling them as well!
14. Educate Yourself
Read a lot of financial books to equip yourself with different ideas and concepts on how you can improve your finances.
If you’ve read some personal finance books before, I’m sure that one of the tips that you’ve read to achieve financial freedom would be to have a strong foundation of financial literacy.
Having a strong financial literacy will make you avoid financial mistakes that can put you in a deep hole.
So make sure to take some time to read books! To start you off, I’ve listed down the top financial books that you can read this 2020!
If you’ve read these books, I guarantee you, you won’t be making the same financial mistakes again!
15. Control Your Spending Habits
Your bad spending habit is what got you in this mess. Remember just because you can afford it, doesn’t mean you should buy it!
Shopping stores and credit card companies are so smart with their marketing campaigns. But you need to be a lot more smarter!
If you’ve spent too much money on dining in high-end restaurants, you should consider eating at home. If you and your friends frequently go on night outs, try suggesting to have a game night in your places. A simple change in your activity can save you money.
Paying off credit card debts requires sacrifice from your end, especially if you want to get rid of those debts immediately.
16. Delete Those Shopping Apps
Here’s a sure way not to impulsively spend money, delete those shopping applications!
Sometimes when we get bored in the house (which frequently happens), we tend to scroll through social media and shopping applications.
When we see those massive discounts, are brain automatically thinks if we need that item or not. And in most cases, we buy that item even though we haven’t really put some thought to it.
And of course, most applications don’t have the option of paying upon delivery, so we resort to using our credit cards…again.
So in order to stop the temptation to look over massive discounts on applications, delete them.??
17. Ask For Help
Ask your family for help. If everyone has turned us down, our family will always have our back.
Explain to them that you can’t handle the interest payments anymore and ask them if they can loan you money to pay off the debt entirely.
Explain that you’ve made some mistakes and you’re going to pay within a time period. Describe the stress and anxiety that you’ve been feeling and you’ll greatly appreciate their help.
18. Make A Decision To Change
Unless you change for the better, you’ll keep finding yourself in the same situation over and over again.
You should now be aware of your spending and bad habits. You should also know that these credit card companies and shopping stores are excellent with their marketing and persuading skills.
All their ads are constructed in a way for you to avail of their service or buy from them. They’ve gotten human psychology to a T! How do I know? Data doesn’t lie.
According to Experian – a consumer reporting agency company, consumer debt in the US has increased by 19% since 2009.
Here’s a table of Average Total Debt By Generation – source: 2019 Consumer Debt Study by Experian.
Just because you belong in that age group, doesn’t mean you should be part of that data as well. We should work hard to be the outliers, the people who don’t have any type of debts.?
Being debt-free is for sure one of the most important steps in achieving financial freedom!
Are Credit Cards Bad?
I personally think they’re not. Although they always entice you to use their services, it’s just plainly their business.
Using credit cards only gives you a disadvantage when you can’t pay off in time what you bought.
Some of the advantages of credit cards would be:
- Being able to build credit.
- Earn reward points.
- Increased purchasing power.
So don’t be afraid of credit cards but be afraid of your spending habits. And in order to combat that fear is to be aware of it and make an action plan to correct that habit or thinking!
So what are your different ways to get rid of credit card debt Comment down below, so others can see it as well! 🙂