How To Get Out of Credit Card Debt
It is not uncommon for business owners to carry credit card debt, especially for those who use credit cards to fund their new business growth. Knowing how to get out of credit card debt is important because credit card eats away at your wealth.
It’s expensive to carry credit card debt as the interest rates typically hover around 20%, which is higher than most debt. It’s also compounded interest which means the interest expense grows at an accelerated rate.
Best way to get out of credit card debt
Paying off credit card debt takes a plan. Without a plan, chances are pretty slim that you will pay off that debt. Paying minimum monthly payments is not a debt repayment strategy. What that does is perpetuate the debt cycle and erodes away at personal net worth.
You need a debt repayment strategy to get yourself out of debt. If you carry a credit card balance of $10,000 and pay minimum payments each month, not only will it take over 30 years to pay that back, but you will also be paying over $2,000 per year in just interest payments alone.
Read: Are You Concerned With Money and Feeling Financially Unstable?
Why it’s important to get out of credit card debt
With the above example, you can see how the interest expense adds up quickly. Credit cards often compound the interest charges, so you pay interest on top of interest. With this accelerated interest accumulation, interest payments can get out of control quickly, not including repaying the $10,000 balance on the card. It can feel overwhelming.
Instead of spending your life caught in the debt cycle, you should focus on your personal net worth and building it.
How can you reduce your total loan cost?
The good news is you can do a few things to reduce your total loan cost, but it takes a plan. The difficult part for many is facing the amount of debt you carry. Having an honest look at how you are damaging your finances is hard. However, putting yourself on a debt repayment plan is much easier once you get past the first step.
The best way to reduce your total loan cost is by paying down the principal amount as quickly as possible. The earlier you are debt free, the less you will pay in interest payments.
Here are a few ideas on how to pay off debt quicker:
1. Refinance debt for a lower interest rate
This is only a good option if you have the discipline to pay off and stay out of debt. Refinancing your debt at a lower interest rate can help you save on interest costs. Have the discipline to stay out of debt after you’ve refinanced your debt and paid it off.
2. Accelerate payments
Create a personal budget and use the extra room you have in your budget to pay down debt. Make sure you allocate your monthly debt repayments into your budget, then add some room for repayment. The Debt Repayment Calculator mini-course shows how long you have to pay back the debt when accelerating your payments. This can motivate you to see the time it will take to repay your debt shrink as you accelerate payments.
3. Pay off higher interest debt first
When you pay off the debt that is charging you the highest interest rate first (your most expensive debt), that method will save you money in the long run. You can add extra savings to your debt to shorten the repayment schedule.
4. Find ways to get extra money
When you sell things from around your house that you no longer use or start a side hustle, you can put that extra cash towards debt repayment. We all have items around the house that we can sell, or if you have free time, find a way to make extra money. It all counts, and small changes add up to big results.
5. Stop using credit cards
Most importantly, stop using your credit cards. Don’t buy things that you can’t afford. If you can’t pay cash for something, you can’t afford it.
Register for the Cash Catalyst course
If you are fed up of drowning in credit card debt and need help in planning out your personal finance strategy then the Cash Catalyst course is for you! Register today!
