Credit Card Debt

How to Get Out of Credit Card Debt

US credit card debt topped the $1 trillion mark for the first time in 2016, and it has continued to rise since. We’re living in a throwaway society hellbent on spending money we don’t have for things we rarely need, and it’s an attitude that leads to a lifetime of debt for millions of Americans.

Once you are in the clutches of debt, it can be hard to escape. But these tips can help you get back into the black.

1. Debt Settlement

If you’re already deep in the red then it can be frustrating to read articles that tell you to save more, spend less, tighten the food budget, etc., The truth is, for those who find themselves deep in debt and can’t see an escape there may only be one option: debt settlement.

Fortunately, it also happens to be one of the best options for clearing unsecured debt.

A debt settlement expert can tackle your debt by negotiating with your creditors. They will bring your total debt down and look to clear it immediately with a lump-sum payment. The best programs can reduce your debt by 50%, and the best thing about these programs is that you don’t need to pay until they have done their job. If they fail to do that job, there are no fees whatsoever.

Depending on your situation, the first step in this guide may be the only step you need. If not, keep reading.

2. Understand Your Situation

Every year the average American household pays between $900 and $1,000 in interest alone, and a huge portion of that comes from credit card and store card debt. The first step to clearing this debt is to understand where it comes from, how much is owed, and what rates you are paying.

This is easy enough if you only have one card, but if you have multiple cards it can be a little trickier. Once you have a clearer understanding of how much money you owe then you need to calculate the rest of your outgoings, before comparing these to your incomings.

3. Stop Frivolous Spending

Once you discover where the discrepancies are in your finances, you need to reduce your outgoings to make sure you have more money in your account every month. The average household throws away between 30% and 40% of the food they buy, spends hundreds of dollars on gambling and alcohol, and wastes tens of dollars on unused subscriptions.

There are always savings to be made, and if you’ve already squeezed every last penny out of your accounts then it may be time to make some sacrifices. Stop spending on luxuries and start putting that money to one side instead. You may go to fewer events, buy less clothes, and spend less on movies and games, but in the long run it will do a world of good for your financial situation.

4. Pay More than Minimum

The less you pay, the more you owe. The biggest mistake that millions of Americans make when tackling credit card debt is to only pay the minimum every month. This means that most of what they pay is just the interest, which in turn means they will never eat into the capital.

If you followed steps 1 and 2 then you should have some extra money in your account at the end of the month. Put this money towards your debt and you’ll bring the total interest down, reducing how much you need to pay over the lifetime of the debt.

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5. Biggest First

A bigger monthly payment is not going to clear your credit card debt entirely. But it’s an important fist step and one that puts you on the right track. Once you’re there then you need to continue making those sacrifices and to keep doubling-up on those payments.

Focus on the card that is costing you the most money first, and don’t move onto the others until this one is clear. That may be the one that has the highest rate of interest, it may be the one that has the largest amount of debt. After step 1 you should have a good idea of which card is costing you the most money.

6. Consolidate

If you haven’t already, then consider taking out a consolidation loan to clear all of your debts at once and allow you to focus on a single debt with a lower interest rate. This is easier if you still have a good credit score and if you earn a respectable salary, but there are options even if this is not the case.

It’s important not to be dragged into a high interest loan that will only cover some of your debts and then leave you with several credit card debts and an extortionate loan. Give yourself some time to ponder, run the numbers to make sure it actually benefits, and then make the leap if you feel it’s the right thing to do.

7. No More Mistakes

Once you’re debt free then there are a few things you need to do to make sure you never make the same mistakes again:

  1. Budget to account for all incomings and outgoings and to make sure you always know what you can and cannot afford.
  2. Keep a couple of cleared credit cards. Having credit that you do not use will help your credit score.
  3. Don’t focus on reward cards unless you are 100% sure you can pay off the balance every month. 3 in 10 cardholders never even use the rewards that they have accumulated, while the majority get so obsessed over their points that they fail to realize they are paying more in interest just to have them.
  4. Build your credit score to ensure low-interest loans and credit card offers going forward.

Have a Question?

Our team of financial experts are here to help answer any question you have to get you connected to the right program.