It’s easy for consumers to obtain credit cards these days and even easier to rack up large bills. The problem starts when it comes to paying off the debt, and many people then find themselves confronted with a credit card bill that they struggle to pay off. According to www.creditcards.com, there were 176.8 million credit card holders in the United States in 2008, and the average household credit card debt was just under $16,000. If you’re one of those account holders and you’re looking for the best way to reduce your outstanding balance, consider these five tips on paying off debt.
Prioritize your debts. Credit card debt may seem daunting, but it may not actually be the highest priority for your household debts. Draw up a spreadsheet of your outgoing commitments and debts to establish how much you can pay monthly. Tax payments or debts from legal proceedings must always be paid first, because there are severe penalties for non-payment. You can spread payments on unsecured debt from a credit card more easily because you have greater flexibility on the amount you pay. Plan carefully and make sure that the credit card debt is genuinely the most important sum to pay.
Pay the highest interest rate first. If you have debt on multiple credit cards, then ensure that you pay off the balance on the account(s) with the highest interest rate first. If necessary, pay the minimum payment on the lower APR cards to enable you to pay off the high interest rates quicker. Your goal should be to reduce the overall debt as quickly as possible, by paying as little interest as possible. If you need help planning this, use an online calculator like the one hosted by CNN Money to draw up a better plan.
Take advantage of balance transfer offers. If you have multiple accounts, balance transfers may be a useful way to avoid or reduce interest payments. Transfer balances from one account with a high APR to another account with a promotional rate. While there may a fee for this, the amount of interest saved should outweigh this. Make sure that you meet the minimum payments during the promotional period, however, as the offer will normally cease if you fail to do this.
Reduce credit limits as you go. Once you have cleared or reduced the balance on a credit card, the temptation to spend the money again is always there. Consider reducing the credit limit on your card, as you pay off the balance, so that you do not have the funds available to spend. If the account is clear, then you should cut up the card or return it to the provider, and then close the account. This is the only fail-safe way that you can ensure you do not use the account again.
Monitor your progress. Paying off debt can be a time-consuming and miserable process, particularly when you see your disposable income consumed by payments. Set yourself targets (e.g. pay off $1,000 in six months) and present this on a chart or spreadsheet so that you can easily see your progress. When you reach a milestone, celebrate with a small treat so that you motivate yourself to continue. Try sharing your plans with friends that are in the same position. Your support network should be able to help you achieve your goals.