Resolve to Reduce Credit Card Debt
In 2020, "saving money" was second only to "exercising more" as the most common New Year's resolutions among Americans. If saving money is one of your goals in 2021, resolving to reduce your credit card debt can help you do it more quickly.
It can be challenging to put money aside if credit card debt payments are weighing you down. After all, there's only so much money in your budget. The faster you drop the financial weight of debt, the lighter you'll feel — and the more money you'll have to achieve other financial goals.
Review the following credit card debt scenarios and suggestions for how to start reducing your debt in the new year.
Scenario 1: You want to pay off your debt but don't know where to begin.
Sometimes figuring out how to start reducing your debt is the biggest challenge. There are several ways to accomplish this goal, and here's a simple one to consider.
One way to start paying off your debts is to double your monthly debt payments. To do this, increase your household income by earning more, spending less, or both.
If you're not able to negotiate a raise with your employer or work overtime, use your skills and talents to earn extra money with a side job. Also, review your budget and eliminate unnecessary expenses such as dining out, cable tv, or online subscriptions.
Even if you can't double your monthly payments with the extra money, you can increase your monthly payments and pay off your debt faster.
Scenario 2: You're having trouble keeping up with multiple due dates and payments every month.
Having multiple credit cards and lines of credit means having a lot of different due dates and balances to keep track of. If you're overwhelmed with the various due dates and payments, debt consolidation can help.
Debt consolidation can help reduce financial stress and get you out of debt faster. With debt consolidation, you pay off multiple debts with a new loan that has a lower interest rate than your credit cards. With one monthly payment (and a lower interest rate), you no longer have to worry about keeping track of numerous due dates and payment amounts.
Just make sure you don't continue using your credit cards, or you'll just end up increasing your total debt.
Call us or schedule an appointment to speak with a Credit Union of Colorado Member Advocate. We can discuss your specific situation and help you find the best solution for you.
Scenario 3: The total amount you owe your creditors doesn't seem to change, even though you consistently make the minimum required payments.
You likely have several high-interest credit cards or loans. Paying only the monthly minimums will keep you in debt longer and can cost you thousands of dollars in interest charges. Here's a more targeted approach to getting a handle on your credit balances.
Gather your account statements and put them in order of interest rate, with the highest interest rate on top. Focus on applying extra money each month to the debt with the highest interest rate while still making the minimum required payments on the others.
Once the first debt is paid off, move on to the account with the next highest interest rate. Make the minimum payment, plus an amount equal to the monthly payment you were making on the debt you just paid off. Continue the cycle until each balance reaches $0.
This method is commonly called the debt avalanche, since it can quickly wipe out high-interest-rate debt.
Scenario 4: You want to pay off all of your debt as soon as possible — and need to see quick progress to stay motivated.
Often, creating quick wins is what you need to stay motivated to get out of debt and work toward other financial goals.
Gather your account statements and arrange them in order of account balance, with the smallest balance on top. Focus on applying extra money each month to the smallest debt balance while still making the minimum required payments on the others.
Once the first debt is paid off, move on to the account with the next smallest balance. Make the minimum payment, plus an amount equal to the monthly payment you were making on the debt you just paid off. Continue the cycle until each balance reaches $0.
This method is commonly called the debt snowball, as you "snowball" your payments to eliminate debts. Since you're focusing on account balances instead of interest rates, you may wind up paying more in interest charges than with the avalanche method. But, you will see balances paid off more quickly.
Resolve to reduce your credit card debt in 2021. When you become financially fit by reducing your debt, you'll have more freedom in your budget to create your dream lifestyle.
Article by: Tracy Scott