Paying off credit, particularly if you’ve accumulated significant debt, can feel insurmountable, but it doesn’t have to feel this way. You can take several steps to make the process easier, faster, and, perhaps most importantly, less stressful.
Before we explore these steps, know that you’re not alone in having accumulated debt to pay off. In the US alone, total credit card debt exceeds a trillion dollars, and for the average American in debt, the amount owed is over $6,300. Other countries, like the UK and Canada, aren’t too far behind this total debt amount either. So, while most people don’t talk about debt, it’s an incredibly common experience. Thankfully, this also means there are tried-and-true approaches to help you regain control of your finances.
1. Track Your Spending
Before you can start paying off credit, you should be aware of your spending habits and income. Take the time to track your spending over a few weeks, ideally for a month. You can review receipts, credit card statements, bank statements, and pay stubs and put all the information onto a single page, whether a Word document, Google Doc, spreadsheet, or a piece of paper. With this, you can make informed decisions to set SMART goals and a practical budget (both of which we’ll explore shortly).
2. Identify Your Debt(s)
Next, take a look at what you owe. You’ll want to identify every type of debt you have—including credit cards, student loans, car loans, and personal loans. As with your spending, you’ll want to have these all listed in a single place to refer to in the next steps. After listing what you owe, you’ll want to identify essential debts, like your car loan or mortgage, that you need daily. You’ll want to make these a top priority when you start repayments.
3. Set Your Goals and Budget
With your spending tracked and your debt identified, you can set goals and a budget. Use your tracked spending to inform a realistic budget for your essential and non-essential expenses and see how much you can allocate to paying down your credit debit each month. You may need to consider reducing non-essential expenses to make this happen.
4. Choose a Repayment Approach
Once you know how much money you’ll use to pay off debt each month, you can determine which repayment method works best for you. Typically, there are two key ways to pay off debt: the avalanche and snowball methods.
The avalanche method prioritizes the debt that has the highest interest rate. With this method, you pay off your highest-interest debt first to help reduce the interest you will owe. Once the highest is paid off, you move to the next highest.
The snowball method prioritizes paying off your smallest debt to deliver a sense of accomplishment and provide motivation to keep paying off your debt. The drawback of this method is that your smallest debt may not be your highest interest one, so you could spend a fair bit on interest as you chip away at all your debt. With this being said, many experts still recommend this method if it will help someone stay motivated and continue working towards debt-free living.
5. Put Away Your Cards
With your action plan in place comes another important step: not using your credit cards. Avoid adding to your credit owed by leaving your card or cards at home and avoiding them for online purchases. If you have the numbers saved on a digital wallet, remove them from it as well to help you resist the temptation to spend. Some financial experts even recommend literally freezing your cards in a bowl of water so you’re not tempted to use them during the repayment process.
6. Reduce Your Spending
As you go about your usual routine, look for areas where you can reduce spending. When it comes to essential expenses like grocery shopping, you can look through flyers to find deals or coupons that will help reduce your food costs. You can also search for discounts on your non-essential expenses to enjoy the lifestyle you want without overspending. For instance, if you enjoy gambling online, you can find out if there are any casinos with a $200 no-deposit bonus and 200 free spins real money offers so you can still indulge in your hobby while freeing up more cash flow to pay off your debt.
7. Increase Your Income
Just as you can find ways to cut expenses, you can also find ways to increase your income. You can do this by asking for a raise or taking on another part-time job—and with many work opportunities online, you can earn more from the comfort of your home. Any extra cash you make from these things can go directly to paying off your credit so you reach your debt-free goal even more quickly.
8. Consider Consolidating Your Loans or Refinancing Your Home
This optional step is controversial because it can lead to further debt problems for some people. Still, depending on your situation, it may be an incredibly valuable tool for reaching your debt-free goal. You can use a balance transfer card, which is typically interest-free for the first year or two of use, or you can take out a personal loan to consolidate your debt into one place.
9. Close Accounts
Last but not least, make sure that you close any unnecessary credit accounts once you pay them off. Generally, you don’t need multiple credit options to manage your finances; usually, one or two cards will suffice. Anything beyond this can be closed or removed from your life.
Conclusion
With these nine steps, you’ll be well on your way to regaining control of your finances and paying down your credit debt faster than you could have imagined.