The average amount of credit card debt for an American household with debt is $15,422, according to personal finance site nerdwallet.com. Trying to pay off a balance of that amount can take a chunk out of a monthly budget. It can be done, however, with determination, grit and some sound strategies.
Face the Facts
If you’re serious about paying down your plastic, you must determine how much debt you’re really carrying. Get out to the mailbox and bring in all those credit card bills and rip them open (or go online to find statements). With calculator in hand, tally up your balances and while you’re at it, take a hard look at the interest rate for each card. Some may be locked in at a low rate while others may be high (some credit card interest rates go above 20 percent).
Track the Trends
"People typically don't track their spending," points out Gary Thurber, assistant director of community relations for Consumer Credit Counseling Service of Central New York. But you should do it to find out exactly where your money's going. "Do it for 30 days, one full cycle," Thurber advises. Track how much you make and how much you spend on everything from a vanilla latte to your monthly mortgage payment. This information will help you create a budget that doesn’t rely on credit cards to get you through.
Related: don't track their spending
Quit the Cards
Plastic is what got you into this mess. So cut up or freeze your cards, but whatever you do, don’t use them. While you’re in the process of paying down your debt, try not to use any kind of plastic other than a debit card, so you won’t be tempted to rack up more debt. It is important not to close an account once you’ve paid off the balance, however, because that unused credit will help to improve your credit score.
Target the Highest Interest Rate Cards
One of the most cost-effective ways to pay down credit card debt is this: Each month, pay off as much as you can on your highest interest rate card and the minimum on all others. Do this until your debt is paid off.
Paying off your plastic won’t be fun, but as Dave Ramsey, syndicated radio program host of The Dave Ramsey Show, reminds us, “If you will make the sacrifices now that most people aren’t willing to make, later on you will be able to live as those folks will never be able to live.” So, quit your cable company, forgo the daily latte, brown bag it, walk instead of drive, grocery shop where you have to bag your own stuff. If you’re in way over your head, move to a smaller place or rent out bedrooms in your home.
Increase Your Income
More money means bigger payments, which means a faster escape from debt. Pick up a part time job on the weekend or put in some overtime if you are employed full time. Wait tables (tips are a good thing), mow lawns, babysit kids, clean houses, edit college papers, input data, freelance, become a consultant. Apply every extra penny you earn toward your credit card balances. The increased payments will save you hundreds of dollars in interest and help you dig yourself out of debt much faster.
Sell Some Stuff
If it's been a year since you've used that old lawn mower then you probably won’t miss it when you sell it. Gather up all your old treasures and junk and have a garage sale. Sell your more valuable possessions at a local consignment store, and list smaller or easier to ship items on eBay. Craigslist is also a great option because there are no advertising costs involved.
Set Up a Savings Account
While it may seem illogical, saving is an essential aspect of a sound strategy to pay down debt. If you have three to six months of living expenses saved up, you're set; otherwise, build an emergency fund while paying down your debt. "The No. 1 problem we see consumers fall subject to is when someone is good-intentioned and wants to pay their debt down, they put every dollar toward it and as soon as an unexpected expense happens, they find themselves using credit again," says Christopher Viale, president of Cambridge Credit Counseling Corp.
Know When to Get Help
If your debt feels overwhelming, turn to a reputable credit counseling agency for advice. You can find one through the Better Business Bureau or state licensing department. Every state’s banking department has a list of accredited agencies for their state. A reputable credit counseling agency can set up an individualized budget and repayment plan for free. For a nominal fee they can run interference for you with the credit card companies and put you on a debt management program.