Credit card debt: tackle it with these 5 easy steps
When we’re young and naive, we’re often fed the lie that we HAVE to have a credit card in order to build up our credit history. We’re told that this will make life so much easier (and more affordable) when we need to start adulting and buying houses and cars. And, so, we succumb to the pressure and make that first application. Lo and behold – 6 months later – we’ve tasted the forbidden fruit of credit and find ourselves in over our heads in credit card debt.
We’re left wondering: how the heck did I get here in the first place?
You’re not alone my friend. Over 55% of Americans that have a credit card currently find themselves in debt. And total consumer debt has escalated to over $4 trillion. In South Africa, credit card debt was sitting at R116 billion at the beginning of 2019, with the average person carrying a balance of R16,481.
We’re drowning in debt. And the only person who can throw out a lifeline is yourself. So, where do you start?
1 | Figure out how much credit card debt you owe
Ignorance is bliss. Except in the case of spiraling debt. So the first step is to figure out how much credit card debt you actually owe.
I realize that this step sounds obvious. But if I were to ask you how much credit card debt you currently have, would you be able to give me the exact amount, down to the cent? Unless you’re already tackling your debt, I doubt you’d be able to give me this number.
Maybe you’re too scared to put an exact number to your debt – for fear that it will frighten you to the point of paralysis. Or maybe you don’t think knowing the amount is particularly helpful.
But when you want to do damage control, you need to assess the damage first. All of it.
Why is it important?
Because knowing the amount of credit card debt you owe does several things, psychologically:
- It stops you from adding on more debt, especially if the amount you currently owe is “large and scary”.
- It outlines the marathon you’re running. What I mean by this is that you have a defined beginning (the debt you owe) and a defined end (being debt-free). Knowing the distance makes the marathon seem more manageable.
- It allows you to set goals. Once you know the amount of debt you have, you can divvy up your debt repayments in a manner that is realistic and achievable, while still maintaining your sanity.
- When you start paying down your debt, even if it’s slow at the beginning, knowing the amount provides you much-needed encouragement. And it reaffirms that you’re on the right track.
2 | Devise a strategy (or use others) to tackle your credit card debt
A quick Google search on strategies to pay off debt reveals thousands upon thousands of ideas. Some of the most common that have been touted to work include:
- Move Up the Minimum: what I mean by this is that, instead of simply paying the minimum balance each month, increase it to exceed the required minimum payment. Banks like it when you only pay the minimum because they’re earning bucket loads of interest off of the remaining balance. Don’t give them that satisfaction.
- Snowball or Avalanche your debt: I’ve previously written about Dave Ramsey’s Debt Snowball method. You start with the smallest debt, pay it off and then shift those payments to help pay off the next debt. The debt avalanche method is slightly different. Instead of focusing on the smallest debt, you focus on the debt with the highest interest rate. Once that debt is paid off, you move on to the debt with the next highest interest rate. Of course, these methods mostly work if you have multiple credit and/or store cards.
- The Family Facility: if you’re able to set strict terms with your family, you could use them as a credit lifeline. Ask them if they’d be willing to pay off the balance of your credit card (on condition that you cut up your card). You then pay them back each month at an interest rate lower than your credit provider.
- Find out what works for you. Do a little research about the strategy you choose (and get tips from people who have succeeded with it). And then make a personal commtment to follow through!
3 | Budget! Budget! Budget!
I’ll say it until I turn blue in the face: your budget is your blueprint!
If you don’t have a budget, you’re building in the dark and without direction. And that is a recipe for financial failure.
Once you know the amount of credit card debt that you owe and you’ve selected a strategy to tackle it, you then need to lay out a plan to achieve it. A budget helps you to do that by tracking what money comes in, what money goes out and, more importantly, where that money goes to. By knowing where your money goes, you’re able to make money-saving changes in your spending.
Also, not only does a budget tell you where your money is going each month but it also allows you to plan for anticipated expenses. Think Christmas. Think birthdays. Maybe for that end of year vacation abroad.
And with planning comes less debt. If you start saving early enough, you won’t have to rely on your credit cards to get you through those expensive months.
4 | Change your habits
If you’ve read some of my work before, you would have read this before: the life you’re currently living (or the debt you’re currently carrying) is the sum of all your habits.
The reason you’re drowning in credit card debt is most likely due to subconscious habits that cause you to spend unnecessarily. Not because the world has thrown you too many curve balls (although I appreciate that this can happen).
Do you find that certain places induce a credit-infused spending-spree bonanza? Then maybe stay away from those places for a while.
Do you find yourself spending more after a breakup? Then realize that this is a trigger and put social and professional support structures in place, rather than relying on retail therapy.
But not only that – focus on fostering habits that make good financial sense (and cents). Start planning for future expenses months ahead of time. Stick to a regular budgeting schedule. Instead of eating out, eat in.
Only you can identify what habit loops are breaking the bank. Take some time to reflect on them. And decide how you’re going to address those habits or replace them with some that make your life richer (figuratively and literally).
5 | Make some extra side cash
My final recommendation is to figure out a way to rake in some extra side cash – whether through passive income ideas or starting a side hustle.
Do you have a hobby that you can monetize? Maybe you love animals and can start a pet-sitting or dog-walking side business? Or you have a car that you can use to earn money as an Uber driver? Maybe you love writing and you want to start a business that offers writing and editing services? Or, alternatively, you want to write a book (or eBook). Or maybe you have an eye for stock photography and hope to make some extra moola from people buying the rights to your photos.
And that is just the tip of the iceberg. The world is literally at your fingertips when it comes to making money online. With the advent of the internet, your product or service is available to billions of people.
Let the creative juices flow. Figure out what you’re passionate about and find ways to turn that passion into money. Not only will you gain a sense of fulfillment from it, but you’ll also be able to channel that extra money into paying off your credit card debt.
Final thoughts on credit card debt
Credit card debt can seem like an insurmountable obstacle to jump over, especially when the amount you owe is high. But take heart – there are strategies you can use to pull yourself out of the debt spiral and get yourself back on track to being financially free.
Have you discovered any strategies that have worked for you that weren’t mentioned in this post? Feel free to comment below and share your wisdom.