This is the trap that a lot of people fall into.
It doesn’t feel overwhelming at first, but the more you use your credit card, the more debt you get into, and before you realize it, you’re in thousands of dollars of debt with no means to repay it.
However, while getting out of credit card debt is difficult, it’s not impossible.
Here are 6 different methods you can use to get out of your credit card debt
1. Budgeting and Spending
One of the most basic methods you can use to get rid of your debt is to keep track of your earnings and your spending.
Make a monthly budget, document every cent you earn and spend, and look at ways to cut down on your spending.
This will, of course, involve some sacrifices, but you can use your savings to pay off your debts quicker.
Another method you can use is to pay more than the minimum amount due every month.
This is because banks charge you interest over each pay period, so when you keep paying only the minimum amount due, you will end up paying more than you actually owe.
It will also take you a lot longer to pay your card off entirely.
2. High vs low interest
Speaking of interest, if you have more than one credit card, you need to first learn what the interest rates are on all of your cards.
Then you should try and pay off the card with the highest interest rate first and focus on the ones with lower interest later.
Look at exactly what the minimum due amounts are for each of your cards and see if you can use the above method (paying more than the minimum due) on the higher interest card and clear it off first.
Of course, if you’re able to pay more than the minimum due on all of your cards, that’s even better.
3. Snowball vs. Avalanche
You know how a snowball gets bigger as it rolls down a snow-covered hill?
The snowball method of debt payment is kind of similar. Here, you will focus on the card with the lowest debt amount.
Once you’ve paid off that debt, you then focus on the card with the bigger debt, and so on, until all of your debts/loans have cleared.
The avalanche method is the opposite.
Instead of focusing on the smaller loan first, you try and pay off the biggest debt first and then focus on the smaller ones.
4. Balance transfer vs loan
A unique method of paying off your credit card debt is to apply for a new one, in this case a 0% balance transfer credit card.
These cards basically offer you 0% interest for a certain period (such as the first year or two).
You can then transfer the outstanding amount from your credit cards into this card.
This way, you will only have to make one simple payment per month, and you can pay off this card much more easily than if you were trying to juggle 3 different payments every month.
However, if you’re not eligible for a balance transfer card, you could consider getting a personal loan to pay off all of your credit card debt.
One of the dangers of doing this would be the temptation to start using your credit card again while you’re paying off the loan, thus increasing your debt.
Hence, if you go this route, it will probably be best if you closed your credit cards.
If you have lots of different types of debt, you could also consider a debt consolidation loan.
This allows you to consolidate all of your debt together into one big manageable loan.
Of course, this means you will probably be in debt for longer, but the interest rates for loans, especially personal loans, are usually much lower than they are for credit cards.
Using this method, you will have just have one single payment to make every month.
If you close off your credit cards, you can avoid the risk of getting into further deb
5. Debt management vs settlement
There are many non-profit credit counseling agencies that offer debt management plans or programs.
Basically, they help negotiate terms between you, the debtor, and your creditors.
They will help consolidate all of your debts into one loan, and thus you will only have to pay the agency a fixed rate every month.
An alternative to this is settlement.
In this scenario, you would use a debt settlement company to contact your creditors and get them to agree to accept a smaller amount than what you actually owe them.
You would then have to pay off that entire amount in one go, so this method may not be feasible to most people.
The other problem with this method is that it will end up hurting your credit score.
The final (and perhaps a “last resort”) method is to file for bankruptcy.
Filing for Chapter 7 bankruptcy can help clear off most of your debt.
However, there are some exceptions. For example, student loans cannot be wiped out by filing for Chapter 7 bankruptcy.
The other alternative is filing for Chapter 13 bankruptcy.
This allows you to restructure all of your outstanding debt under the protection of a federal court.
You can then pay this off over a period of 3-5 years. Of course, your credit score will, again, be affected by this.