(photo credit: Financial Best Life)
When you were in your teens, your parents might have given you their credit card to make small purchases. Since it’s only plastic, you decided to sneak a few items in hoping that maybe it won’t trigger any alarms (If it makes you feel any better, I did). Unfortunately, it's all fun and games for just while, and then your parents sat you down (or maybe yelled at you) and asked how a $35 tank of gas ballooned to $150 (or more). And, there was your first lesson in credit card debt.
While we have grown up with an education in smart budgeting, or some kind of guidance from our parents or guardians, credit card debt can be easy to slip into. Life throws plenty of distractions from jobs, family, and other investments. Soon, you find history is repeating itself and you’re not relying on your parents to back you up this time.
Falling into credit card debt is a call to action. Being in our 20+ somethings, I find it very important to tackle this chapter in order to grow into a financially independent adult. The root of it is that you need to stay focused on your monthly payments and regulate your cash flow. That's definitely what I'm pushing myself to follow now that I have more steady income. You can also follow these simple tips to help you.
1). Put the card down!
I know it's hard. We constantly find ourselves justifying our purchases, and spending money when we don't really have it. But just think about it. You already have enough on your plate. Don’t make a bigger mess. Use other payment options to cover expenses. Budget your hard cash to use for small, everyday purchases. As long as you have enough in your bank account, you could try a debit card for larger purchases. If you have a cash-back credit card, then you can use the savings towards your debt.
2). Snowball or Avalanche
Attacking debt head on depends on how you face the situation. You could start from the smallest to the biggest, or the biggest to the smallest.“Snowballing” debt involves paying out manageable increments until the number lowers to an amount you pay off in one huge amount. There’s also the “avalanche” method, where you pay out the highest rate at first notice. This ensures a lower debt towards the end of a billing cycle.
Consolidation is a tricky, but very popular, method to pay off debt. One of which involves (I did my homework) cashing in on any real estate investments that you own. Home equity loans involve borrowing a line of credit that is more than the current value of your property. Use that difference to pay off your credit card while covering your housing expenses. The downsides are that you may have to pay closing costs and will put your property at risk in the event of bankruptcy. Instead, try a balance transfer to a second credit card with a lower interest rate. Just don’t incur new debts on the old card once the balance has been transferred. Sounds complicated? I know, right? But it can be done! However, I'm sure most of us here don't have real estate solutions to help us consolidate our credit card debt; so we can resort to more simpler solutions. Which brings me to step 4...
4). Pay Often and More
Every new payment made to your bank account is like a key to your freedom. Allocate enough of those earnings to use toward your debt payments. Make early payments so you won’t have to settle a large bill every month. Picture your debt as less of a vacuum cleaner and more like a piggy bank. The more often you pay into it, the less money you lose in the long run. If you can handle it, why not make two monthly payments? Paying every week will mean a lower interest rate. This method is my favorite and one that I will try to stitch to as faithfully as possible.