Paying off credit card debt can be like losing those few extra pounds you want to eliminate – it’s hard to get started and equally challenging to find a plan that you can stick with in the long run. There are several different tactics for paying off debt, but two of the most popular are the Snowball and the Avalanche approach. With the snowball approach, you pay the minimum amount due for each credit card each month and put any extra towards the credit card with the smallest debt. When that credit card is paid off, you then put extra amounts to the card with the next smallest debt. Using the avalanche method switches gears from the card with the smallest debt to focusing on the card with the highest interest amount first. The avalanche method is often preferred because it can save you more money in terms of lower interest payments over time.
As you pay off credit card debts, it is also the right time to look at how to prevent it from occurring again. What changes can you make to your lifestyle to prevent future over spending? The first step is to create a budget. If you find expenses are greater than money earned each month, use your budget to take a look at where you can reduce your expenses. Is it possible for your family to downsize an expensive car or one that is a gas hog? Is your debt situation caused by owning a house that just doesn’t fit the budget? Often times monetary changes can be more subtle in the forms of eating in more than going out or cutting some expensive tv or movie viewing subscriptions. If your electric bill is high, take a look at what is eating up your electric. Is it possible to heat or cool your home in another way? Are you unplugging all electronics each day?
Once you’ve selected the pay off method that is best for you, created a budget, and looked at which costs to eliminate in the future, it’s time to set a goal for how long you want to take to pay off your credit card debt. Curious how long it will take based on interest, minimum payments, and all those other factors? Fortunately, there are a multitude of credit card payoff calculators available that can then show you what your monthly payment needs to be. At The Balance, they review and recommend 5 of the best. Which payoff calculator is best for you will likely be determined by the factors at play in your own debt, such as how many cards do you have.
We’ve discussed previously what to do with your tax refund. Paying off some or all of your credit card debt was at the top of that list. Putting money towards debt helps to lower the amount of interest that you are paying, thereby saving you money in the long run. If you are worried about your credit score, having a lower amount of debt helps to increase that rating as well. If you are so fortunate to receive a financial bonus at other points in the year, putting a portion of that towards debt is usually the best choice. If you find you need someone else to turn to with questions about credit card debt, the National Foundation for Credit Counseling is a non-profit that can help!