Regardless of which credit card survey you read, most indicate that the average credit card debt in the U.S. is @$16,000 (household), which translates to over $780 billion in consumer debt in the United States.
The financial costs of credit card debt are obvious – paying more in interest, not being able to save, no retirement plan. However, the emotional costs of credit card debt are often overlooked. Higher levels of stress, behavioral dysfunctions, anger, regret, all add up to a level of dissatisfaction that can overflow into every aspect of your life.
If you’re struggling with credit card debt, and want to get out of debt. Here are four tips you can use to position yourself for success and remove the financial and emotional burdens that come with credit card debt.
#1 Understand What You Have for Credit Card Debt
This seems pretty obvious, but the average number of credit cards per individual in the U.S. is two. About 30% of credit card holders have 3-4, and another 15% have 5-6.
The more credit cards you have the less likely it is you understand what your current balance is, your monthly payments and the interest you’re paying – at least until the monthly statement comes. Understanding your credit card debt, how much it is and what your minimum payments are is a first step to getting out of debt. Once you fully understand your situation you can create a plan to get out.
#2 Establish a Plan for Paying Off Your Debt
Unfortunately, when trying to get out of debt some will fall back on “hope”. Hoping that somewhere in the future their circumstances will change and they will be able to pay off their debt. Unfortunately, this rarely happens. From an FTP perspective, and in relation to credit card debt – “hope” is a four-letter word.
If you were going to drive from New York to Denver, the quickest way to get there would be to plan the best route. You would consider the roads you would travel, the towns you were going through and the places you might stay. You would have a plan, a roadmap.
Getting out of credit card debt, and doing it fast is no different.
There are no shortage of opinions on how to pay off debt. I personally am a huge fan of the Snowball Method (from experience), specifically when it comes to credit card debt. Why?
Because the snowball method takes a practical and systematic approach to paying off debt. It’s easy to understand and provides a huge emotional lift as you’re trying to dig your way out of the proverbial debt hole.
In fact, a Harvard study found that concentrating your efforts on paying off a single credit card balance versus dispersing payments across multiple credit cards led to a higher success rate of paying off debt. You can read the complete article here.
#3 Create a Budget
If hope is a four letter word when trying to get out of debt. Budget or Budgeting is the four letter word of personal finance – with the exception that it doesn’t have four letters.
Budgets feel restrictive. They have the perception that creating one is going to force you to give something, everything up. However, I don’t know anyone that successfully manages their money without understanding their budget – where their money goes and what they have to work with.
In respect to paying off credit card debt, creating a budget and understanding where your money is going will provide you with insight on how you can reduce your monthly expenses. And then you can use those extra savings to pay off your credit card debt faster.
#4 Get Rid of All Credit Cards Except One
Similar to taking control of your credit card debt by understanding what credit card debt you have (Tip #1), having one credit card to manage in the future will keep you from creating the same environment your already in.
My recommendation for individuals struggling with credit card debt is to remove any opportunities to use credit in the future. Eliminating all your credit cards except for one will remove the temptation to “charge it” and accumulate more debt.
Finally, as you travel down the road to paying off your debt keep these key points in perspective.
- Debt is not a lifetime sentence. Others have had credit card debt and worked their way out to achieve financial freedom, you will to.
- Set your expectations appropriately. You can’t spend years ringing up credit card debt and expect to pay it off overnight. The wrong expectations can be a real de-motivator as you travel down the debt-free road. The key to success is to stay focused, stay consistent in your efforts and stay the course. It may take some time, but you will achieve success.
- Keep reminding yourself that the real reason you’re working so hard to pay off your credit card debt isn’t just because of the money you’re going to save. Rather it’s the other lifestyle opportunities you will create for yourself – career, family, where you live and how you live.
- Credit Sesame, free credit monitoring service.
- Filling the Pig – In 4 Steps, the complete guide to eliminating debt.
- Debt Calculator
Want to learn more about successful money management strategies? Be sure to check out my complete eBook series.
Do you have a tip for paying off credit card debt? Comment below.