In these days of uncertain and wildly fluctuating global financial markets, it takes very little to adversely impact your credit status. Many people have been hit by poor credit ratings and many more are running scared of losing their precarious standing. Just a few missed credit card bill payments or defaulting on other loans can knock you off that shaky pedestal, and bring creditors baying at your door. How can you avoid all this stress and anxiety? It’s easy if you follow 5 simple steps to pay off credit card debt.
1. Take stock
Draw up a list of your various credit cards. Make a note of the outstanding balances on each of them, as well as the interest rate you are being charged by each card. Jot down how much your minimum payment commitment is, and what percentage of the total due you must pay to avoid being charged interest. You may be shocked when you first list this out, but the first step to getting out of trouble is to know exactly where you stand. Look at this exercise as the first step on your road back to financial recovery.
2. Set priorities
Looking at the list you just made, identify the credit card that charges you the highest interest. This should be the one to pay off first, because the return on your effort will be the greatest. Once that’s done, you’ll work your way down the list, going from the card that’s costing you more to the ones that are cheaper.
3. Know your number
Each of your credit cards will have a minimum payment due. Total this figure for all your active cards. This number is the absolute minimum you’ll have to pay off every month in order to avoid being in default and risking your credit standing.
4. Make a budget
Write down all the items you are spending money on every month. If you’ve never drawn up a budget before, this can be a stressful activity. But only after you methodically note down the areas you are spending money, you’ll be able to identify those where you can cut down and save cash. This will help you pay off your minimum credit card balance and get out of credit card debt.
5. Plan payments
Pay off the minimum balance on all your credit cards. There’s only one exception to this rule. On the card which you are paying the highest interest rate, pay as much as you’re able to afford, making use of the money saved through your budget planning. If your minimum balances add up to $150 and you have saved $350 on your monthly expenses overall, then the additional $200 should go to paying off the costly credit card balance.
Continue with this process until all outstanding dues on the highest interest rate card are paid off. Then repeat it for the next card with an interest rate that’s now highest. Do this over and over until all your credit cards are fully paid off.
While this exercise will get you out of credit card debt, there’s one more step to take that will ensure you stay out of the debt trap in the future. You must negotiate your credit card interest rates with the company. If a particular credit card company refuses to lower your interest rate even after you have paid back your dues, consider changing to another that will offer you lesser rates.
Another approach is to move your balance from cards that charge you higher rates to another one. Even if there are charges involved in this transfer, over the long run you’ll save more money by paying lesser interest on the unpaid credit card debt. And as a final step, review your spending habits and see if you really need multiple credit cards. If not, get rid of the extra cards to avoid the temptation of sinking back into the trap of spending money that you don’t have!
Sam Jones, the author, has been looking at information on debt relief order at uswitch.com to try and see what options for debt consolidation and debt management exist. It can be really hard trying to evaluate your debts but with a bit of research you can find some fantastic solutions.
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