When you cut out credit card debt for good, you can stop paying for your past and start building a strong financial future.
Credit card debt is one of the most common types of debt, but don’t be lulled into thinking it’s no big deal. Just because everyone’s doing it doesn’t mean that racking up debt on your credit card is okay. If you can use credit cards effectively as part of a balanced money plan (read: you only use them to buy things you need anyway, not extras that you can’t afford, and you pay off the balance in full, on time, every single month) then some credit cards can be a helpful tool–like a cash-back rewards card, for instance. But credit cards can be dangerous. They are not free money! So if you don’t pay the balance off in full and on time, every time, then your debt simply snowballs. A small purchase can get out of hand. For some perspective: savings accounts earn interest at less than 1 percent. The typical credit card charges you interest on a past-due balance at anywhere from 15 to 25 percent (or higher).
Know that this is a major step forward toward a brighter, financially healthier 2015 and beyond. Taking control of your finances is one of the most important and empowering things you can do for yourself. Here’s a step by step approach to get out of credit card debt and free yourself to focus on a bright financial tomorrow.
- Figure out the who/what/when/where/why of your credit card spending.
Making a big shift in your financial life starts with shifting some of your basic habits. These are things you probably don’t even think about, so taking the time to look for patterns can help you diagnose the underlying problem. If you’re consistently using your credit card at the end of the month because you run short, then you need to balance your money overall. If you see a pattern of impulse buys on the weekends, then it’s time to rebuild the “wants” portion of your spending and make a money plan that has room to fit in some fun spending without going overboard. If you notice that the bill for dinner with friends somehow always ends up being steeper than you planned, be ready with a plan the next time that evite goes around and have everyone over for a pot luck.
- Check out your credit score.
Your credit card usage (how much you charge relative to your credit limit, and whether you pay your balance on time) is one of the factors that affects your credit score. You can get a free credit report, which can help you get a sense of how your credit card habits are impacting your credit score. Your credit score, in turn, affects your ability to get a loan, rent or buy a home, and may even come up in a job search.
- Stop skating by with paying just the minimums – no excuses!
It’s time to stop paying just the minimum on your credit card bill every month. Your debt will only keep growing, with interest. Pay it down and free yourself and your money for better things. This might mean re-allocating your money so that you can save more for this purpose until you’re free of this debt. If you’re thinking, “I can’t afford more than that minimum,” take a closer look. Your financial health is worth it. Your future is worth it. Make it a game! Challenge yourself to see where else you can find ways to reduce, and know that if some months you actually can’t make quite as big of a dent as you hoped, that’s okay. Do what you can, then start fresh next month, or even take it week by week until you’re back on track.
If you want a way to jump-start this new, credit card debt-free you, try the cash-only diet as a detox from debt. Handing over physical money gives us a much greater sense of our spending than just swiping a piece of plastic.