Credit card debt is a common issue in the US, with an average debt per household of $7,876, according to NerdWallet’s 2022 American Household Credit Card Debt Study. Getting out of it is not an easy task and requires discipline, a hands-on approach, and some amazing organizational skills. Nevertheless, it is not impossible! In this article, you will learn how to manage and eliminate credit card debt efficiently. Learn strategies like budgeting, debt consolidation, and lifestyle changes to achieve financial freedom quickly and effectively.

1. Understanding your debts

Knowing just the amount you owe is not going to help you out with paying that off. Specifically, knowing your interest rates is what will help you the most. Credit cards come with different interest rates and prioritizing the highest ones is a crucial step in this journey. The higher the interest rate the more you are paying for the borrowed money. NerdWallet, a personal finance company that provides financial guidance through various tools, emphasizes the importance of this step as it can significantly impact your repayment strategy.

Most people do not realize that credit card companies can change interest rates over time. If you watch your bank statements closely, you can catch any difference that may occur. When the interest rate goes higher, it may be time to either transfer your balance to a card with a lower rate or change the prioritization of payment you’ve made.

Finally, not only knowing the amount but also the way the debt was created is key to lowering it. Recognizing patterns in your spending helps you avoid the same mistakes in the future.

2. Stop using credit cards

To reduce your debt you will need to change your relationship with money. Distinguishing emergencies from non-emergency situations can affect your spending habits. The key step here is not to use any more credit cards while paying off debt. How so? Well, if you continue using them, it would be like taking one step forward and two steps back, making it a cycle that keeps you in debt. By not using credit cards, you will reduce accumulated interest rates and debt, and change your view on money.

3. Create a budget

This may seem obvious but creating a budget is not the hardest part of this step. Understanding your financial situation is harder than it looks because it means you need to track your income and expenses. Once you have a clear picture of what actually burdens you and what needs to be cut down. Tools like Mint and YNAB can connect to your bank accounts to help track your spending in real-time. They categorize your expenses, allowing you to see where you might be able to cut back. They also help in setting and tracking goals, such as reducing debt or saving for a specific purpose.
By setting specific financial goals, whether it’s paying off debt, saving for a down payment on a house, or planning for retirement, a budget can help you focus your spending on what matters most to you. But, remember, a budget is not set in stone. It should be reviewed and adjusted regularly to reflect changes in your income, expenses, or financial goals.

4. Free up money

A lot of expenses are hidden fees or just not well-planned out shopping endeavors. To free up money, essentially you would need to lower your expenses and increase your income.
To lower expenses, some additional research needs to be done. Start by reviewing your subscriptions and eliminating unnecessary, cut down on utility bills by switching to LED lights, adjusting your thermostat, and reducing water usage. The biggest trick is to eat at home, meal prep, and not waste money on groceries you wouldn’t eat.
To increase income, one of the most common ways is to find a side job. Work from home, freelancing and part-time jobs are available more than ever. This way you can try and utilize some of your skills or hobbies, by selling your craft. Whether you can write articles for companies or sell handmade scarfs, side hustling is the go-to way for a quick income increase.

5. Emergency fund

A lot of debt comes from unpredictable situations. Even with a budget you follow strictly, your car can break down, a tooth can be cracked, or an electrical appliance can be broken. While usually you would need to borrow additional money for these situations, try to make an emergency fund to prevent more debt. As soon as you can start putting some money on the side, you will prevent future debt increases.

6. Debt Snowball method

This method focuses on paying off small debts first. Let’s say your smallest debt is $50. After you pay that, add that $50 to the minimum payment you were making on the next smallest debt. when you pay off one debt, you take its payment and add it to the next smallest debt’s payment. This way, the amount you pay on each debt gets bigger and bigger – like a snowball rolling down a hill and getting larger. This method works well because it helps you see progress quickly. You get the satisfaction of completely paying off a debt, which can motivate you to keep going

7. Debt consolidation

Debt consolidation involves combining multiple debts into a single, larger piece of debt, usually with more favorable terms like a lower interest rate, lower monthly payment, or both. This can make managing your debt simpler because you only have one payment to worry about each month instead of multiple payments to different creditors. A popular method is taking out a personal loan. You use the loan to pay off your various debts, and then you only have to make a single loan payment every month.

8. Change your habits

Identify costly habits and try to eliminate them. Instead of a gym membership, find at-home training apps. When shopping for food, look out for discounts and coupons, and don’t buy more than you need. Turn nights out into nights in, switch from movie theaters to an at-home movie premier, and more. The key is to use all the money saved from changing habits and put it into paying off debt.

9. Side hustles

Side hustles can be a temporary way to pay off debt quicker while having a full-time job. The scope for side hustles is vast and varied. It could be anything from freelance writing, graphic designing, tutoring, ride-sharing, and selling crafts online, to doing odd jobs like dog walking or babysitting. The key is to find something that aligns with your skills, interests, and schedule. Use the money earned to pay off debt as fast as possible.

10. Paying off higher interest rates first

Now, the tip here is to focus on paying off the cards with the highest interest rates first. Why? Because those cards are costing you more money over time. It’s like plugging the biggest money leak first. By doing so you pay less overall, you get out of debt faster, and you have more money in your pocket – once those high-interest debts are gone, you have more money every month. So, it’s not just about getting rid of debt; it’s about doing it in the smartest way possible.

Conclusion

Managing and eliminating credit card debt requires a combination of strategic planning and lifestyle adjustments. By understanding your debts, creating a budget, and exploring various repayment methods, you can make significant progress toward a debt-free life. Remember, the journey to financial freedom is a marathon, not a sprint, but with determination and the right strategies, it’s a race you can win.