A number of people find themselves under the burden of credit card debts to do a sudden emergency expenditure or simply because they spent too much money using their cards.
Whatever the reason, here are some ways you can pay off your debt:
Table of Contents
1. Pay the Most Expensive Balance first
If you have accumulated several credit card debts, the first thing that you need to do is list them in order from the highest rate of interest to the lowest. You need to make the minimum monthly payment on each of these debts but other than that, all your extra cash should go towards the one with the highest rate of interest.
The reason for this is that if you don’t pay off high-interest debt as early as possible, the interest due will keep getting higher and more difficult for you to pay off. This is one of the best strategies for repaying credit card debt as in this way, you will have to pay the least amount of interest possible on a debt with a high rate.
Once you have paid off the highest debt, roll over the extra money you were using for it to the second one on your list and continue the process until you are debt-free.
2. The “Snowball” Method
The ‘snowball’ method is exactly the opposite of the strategy mentioned in the previous point. Under this method, you need to make a list of all your debts. Similar to the previous strategy, you will have to pay the minimum required monthly payment on all of these debts.
The difference is that any extra money you have should go towards the least amount of debt you owe instead of the highest one. Many people prefer this method as they believe that it wipes off their debts quicker and gives them more time to focus on repaying the ones with a higher interest rate.
While the debts with high-interest rates will take slightly longer to be paid off by using this method, you will get a sense of satisfaction and clarity as you remove the low-rate debts from your list swiftly.
3. Get your Spending Under Control
Spending money from your credit card when you’re already in debt is one of the worst financial decisions you can make. Whether it is a business card or a personal card, you must stop borrowing even a single penny from it until and unless you have successfully paid off all your outstanding dues.
If you keep using your credit card when you are already finding it difficult to cope with the debt you have accumulated on it, it will become even more difficult for you to repay the debt. The more you keep borrowing, the more money you will have to pay back with an interest.
While it is understandable to make use of your credit cards in case of an emergency, you must try your best to avoid indulging yourself in any frivolous expenditure. Also, it is a good idea to cut down your spending even by other means to save more money and pay off your debts faster.
4. Grow your Emergency Fund
42% of people have increased their credit card debts ever since the COVID-19 pandemic. A major reason for this is that a huge number of people fail to save money from their paychecks and during a time of crisis like a medical emergency, they tap into their credit cards to pay off the bills.
While it is understandable to use credit cards during emergencies, it will only add to your debt burden. That is why it is important to maintain an emergency fund that can help you in dealing with situations where you require extra money.
Moreover, try to use your credit cards only for some particular scenarios. Using it too often will only make you pay more interest. While you’re under debt, you should try and use as much cash as possible instead of credit cards even in case of emergencies.
5. Debt Mediation
Debt mediation is exactly what it sounds like. It is a procedure where debtors and creditors come to a settlement when the former fails to pay their debts in time. If you have gone too long without paying your dues, your credit card company may approach a debt collection agency to make you pay them back. Mostly, this results in both the parties approaching settlement.
If you are in a scenario where it is not possible for you to pay back the entire amount and you wish to come to reach a settlement amount, you need to hire a Credit Mediation Debt negotiation company that can negotiate with the creditors on your behalf and come to a solution that is acceptable to you and the credit card company.
You need to use these methods to pay off your credit card debts and avoid getting yourself into any sort of legal trouble.