Summary: Credit card debt can make you feel trapped. If you’re wondering how to get out of credit card debt, you’re in the right place. Our 5-step plan can help you quickly get free from credit card debt.
You have a mountain of credit card debt, and you’re not even sure how it happened. It’s stressful and overwhelming - but there’s something you should know:
You’re not alone.
Most Americans carry a balance on their credit card. According to Experian’s 2019 Consumer Credit Review, the average credit card debt is $6,194.
Depending on your debt balance, that amount might seem large or small to you.
But here’s the thing:
It doesn’t matter if you have more or less than the average person. You just want it gone. And you want it gone fast!
Getting out of credit card debt isn’t as hard as you might think.
You just need a proven system to tackle your credit cards. Follow these five simple steps to get out of credit card debt fast.
Step 1: Figure Out Where Your Debt Is
Before you can tackle your debt, you’ve got to figure out where your debt is and how much you owe.
The best way to do that is to grab a good ol’ fashioned piece of paper and pencil and list your debts one by one.
Here’s how to do that:
Log in to your online account for each credit card. If you don’t have online access, that’s okay. Your most recent statement will have the information you need, too.
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At the top of your paper, write the name of the first credit card company. Then write the total balance, minimum payment amount, and interest rate from your online account or statement.
Do that again for each of your credit cards.
When you have all your accounts listed, it’s time to add it all up.
Take a look at each debt, and add the balances together to get your total amount of credit card debt.
Now that you know how much credit card debt you have, don’t let it overwhelm you.
You’re going to conquer this credit card debt, one step at a time. Congratulations! You just completed your first step!
Step 2: Evaluate Your Spending
Before we get into step two, a word of warning:
We’re going to talk about the “b” word… that’s right, a budget.
Because here’s the thing:
Minimum payments don’t work to get you out of debt.
A budget can help you evaluate your spending and free up some cash to put toward your credit card debt payments.
You can use a pen and paper, spreadsheet, or budgeting app to help you track your spending. If you’re serious about getting out of debt, You Need a Budget is one of the best apps out there.
Otherwise, Mint is a popular option if you’re looking for a free budgeting app.
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When reviewing your budget, look it over to see where you might cut back.
Ask yourself questions like:
Do I really need Netflix and Hulu?
Can I shop at Aldi or another discount grocery store to lower my food costs?
Every little bit helps when paying off credit card debt.
Step 3: Set Up Your Snowball
A debt snowball is a debt repayment strategy that can help you knock out your debt faster than sticking to the minimum payments.
Here’s how it works:
- List your debts from the smallest balance to the largest.
- Make minimum payments on each credit card except the smallest.
- Pay as much as you can on the card with the smallest balance.
- Repeat steps 2 and 3 until you pay off all credit card debt in full.
The real power in the debt snowball is in the third step of the snowball.
Any extra money you pay toward your debt puts you that much closer to being free of your credit card debt.
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You might cut cable or stop going out to eat to reduce expenses. Or mow lawns or start a side hustle to bring in extra income.
To track your progress, set up a spreadsheet for your debt snowball.
Or there’s an even easier option:
Undebt.it is a free tool that helps you manage and pay off your balances. It’s simple and secure to use. Enter your credit card balance, minimum payment, and rate information from the list you made in step one. The program will calculate your monthly payments and give you a projected debt-free date.
Step 4: Consider Debt Consolidation
Interest rates are one of the worst things about carrying a credit card balance.
Did you know the average annual percentage rate (APR) can range from 15.49% to 22.61%?
And high interest rates can eat up over half of your payment.
Lower interest rates can mean more of your monthly payment is going toward the principal balance. You have a few options to drop your rate:
- Get a 0% balance transfer credit card
- Take out a personal loan
- Use a consolidation app like Tally
If you opt for a 0% balance transfer credit card, know that the 0% is usually an introductory rate that expires after 12 or 18 months.
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Keep a close eye on the calendar.
If you don’t have the balance paid off by the end of the introductory period, the credit card company will retroactively charge you for interest.
You could end up paying more if you’re not careful.
A personal loan to consolidate credit card debt is a good option if you qualify for a lower interest rate than what your current credit cards are charging.
And a consolidation app like Tally can help take away some of your stress by managing your debt for you.
There’s one catch:
Debt consolidation doesn’t get rid of your debt.
It’s an excellent way to lower your interest rate to pay off your debt faster.
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But to get out of debt for good?
You’ve got to change your financial habits.
Step 5: Create Better Financial Habits
Your financial habits got you into this mess. If you don’t change your behavior, you’ll be stuck in an endless cycle of credit card debt.
And no one wants that.
Stick to your budget, avoid common budgeting mistakes, and make sure you know the difference between wants and needs.
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And if you hope to pay off your debt even faster?
Consider ways to make more money to boost the amount you throw at your debt snowball.
The Bottom Line: Don't Give Up
Even with this strategy and the best financial habits, dumping your credit card debt can take some time.
It will happen. And in the meantime?
Trust the process.
Because when you have a process to pay off your credit card debt, you can have peace of mind knowing you’re doing all you can to kick those debt balances to the curb.