Most people know that the burden of high-interest credit card debt can reduce their quality of life and ability to save money for the future. However, urgent medical bills, a temporary job loss, or even a vacation can run up balances quickly. There is little point in regretting the circumstances that ran up large balances and high interest charges. However, just paying the minimum balance due on credit cards could mean carrying debt and paying interest for a long time. When people do find themselves in a position to begin paying that debt back, the right strategy can greatly increase their chances of becoming debt free in the future. Here are some common sense strategies for paying off credit card debt.
Logical vs. Satisfying Approaches to Paying Off Credit Card Debt
People who have balances on more than one credit card might have a hard time figuring out where to begin. An extra $50 or $100 a month might not seem like much when compared with thousands of dollars of credit card balances. However, the important things may not be how much extra money can get applied to balances or which balances they get applied to. The key to success most likely depends upon developing a plan and sticking to it. A little knowledge of human psychology might ensure a debt-free future more than a spreadsheet, calculator, or even a lot of money.
There are two camps when it comes to paying off debt balances. These might be thought of as the Mr. Spock and Captain Kirk strategies. One relies on logic, and the other one relies more on intuition. Either one can be successful, but different types of people will have better chances of success with one or the other.
Mr. Spock: Allocate as much money as possible to pay more than the minimum on credit cards that charge the highest interest rates.
Captain Kirk: Allocate extra money to pay off credit cards with the smallest balances because that reduces the number of credit cards with a balance more quickly.
Which Credit Card Payoff Strategy Should You Chose? – Common Sense Strategies for Paying off Credit Card Debt
Logic and even common sense might suggest that the first strategy should prevail. However, lots of people can stick with the second strategy more easily because they enjoy the satisfaction of meeting short-term goals quickly. This can be compared to successful dieters trying to lose five pounds at a time instead of the fifty pounds they hope to lose in the future.
Plus, this strategy reduces the complication of having to keep track of several different credit card payments, and that complication could lead to missed payments. Saving a few dollars on interest charges might not be as critical as keeping things as simple as possible and enjoying the satisfaction of hitting milestones.
Additional Strategies:
Calculate Outstanding Debt
Adopting a holistic strategy in ameliorating credit card debt involves the seemingly perfunctory task of calculating exactly the amount of debt you’ve accrued. Organize all of your credit card statements, in addition to other loans you may have absorbed, and determine the total outstanding balance across all of your existing accounts.
Understanding the full scope can mitigate the impact of unexpected costs in the future. Be sure to thus inventory your spending and total debt.
Credit Card Consolidation Loans
Credit card consolidation loans are personal loans taken to pay off multiple credit card balances at a single time. The primary utility of acquiring a credit card consolidation loan is that interest rates on them are generally lower than that of credit cards, reducing the amount of interest paid over time.
As a general practice, when reviewing the terms of a loan, ensure that the designated interest rate is lower than your credit card interest rates. Otherwise, it makes little sense to engage in the schemata of credit card consolidation repayment.
Contingency Fund
Ideally, it’d be wise to save 3-6 months worth of anticipated expenses to obviate the need to leverage credit to pay for monthly expenses. Possessing a contingency, a safety net, can engender financial confidence during strenuous and stressful times. One doesn’t necessarily need to be extravagant in setting aside money from one’s paycheck; merely start with a small percentage of each paycheck for several months and observe your contingency quickly aggregate.
Responsible Spending
A credit card is not a blank check. Apply your credit card only to planned expenses, not spontaneous ones. To regulate your credit card usage further, you can also apply automated payments on certain accounts, ensuring payments will be transacted at the appropriate time and your credit score will not be adversely impacted.
Whatever the case, assiduously monitor your credit card usage. It is credit, which entails additional costs, and which should not be over-extended.
