Credit card debt is at an all-time crisis. With compounded interested levels of up to 20 percent, it can quickly spiral out of control. Getting the credit cards paid off should be every family’s number one financial goal. It is the first step in living debt free.
The are right ways and wrong ways to pay off your credit cards. Taking out a second mortgage or home equity loan is probably not the best idea, although some others may advise such actions. The same goes for borrowing from your life insurance policy or from friends and family. The key is to do what you can to get out of debt, not to transfer it somewhere else. When you transfer debt, you still owe it, and then may also have the false security to continue to add new debt onto those credit cards.
To break out of the debt cycle, you want to get rid of the credit card balances completely. First, contact your credit card companies and try to negotiate for lower interest rates. Let them know that you are committed to paying your debt, but you need the lower rate to make it work. Most credit card companies would rather avoid you going into bankruptcy or transferring your balance to another card. They may work with your on your rate.
Next, make a commitment to pay more than the minimum on your cards. If you continue to pay minimum balances, you will never pay off your credit cards or get out of debt. Set aside as much money as you can each month toward your credit card debt. You may have to find new ways to earn extra income or ways to save on your existing expenses in order to make this happen.
It helps if you already have a household budget. If not, add up all of your income, subtract your basic expenses and figure out the cash flow that is available to you. This will give you a good idea of how much you can pay out on your credit cards each month.
If you have multiple credit cards, choose the one card with the lowest balance. Pay the minimum balance on all other cards but apply as much extra money to this one lowest card until it is paid off. Close the account. Then apply the amount your would normally pay on the old paid off card to the next card you owe, along with that next card’s minimal balance or better. This is called the snowball effect and will help you pay off your debt as quickly as possible. It is important to stay aggressive with each card until you get them all paid off.
Freeze your spending to just the essentials, such as food, shelter, utilities and transportation. Work to bring even these expenses down so you will have more money to pay off your debt. While you are paying off your credit cards, do not make the mistake of adding more debt.
When all of your credit cards are paid off, celebrate your new found freedom of being credit card debt-free!