Credit card debt running away from you? Well there are two things that might give you a little peace of mind.
First, you’re not the only one and second, there’s a way to catch it and put it away for good.
American credit card debt increased by $71 billion in 2015 to $917 billion. While that’s only $220 per person, we all know there are plenty of people without a credit card, plus those who don’t have a balance on a credit card. The average household has $15,000 in credit card debt, but here’s how to start paying off your debt or avoid it in the first place.
1. Save for periodic expenses
One way to avoid credit card debt, is to save for what you’ll need to pay in the future. Put money away for periodic expenses like car or home repairs, taxes or tax preparation, insurance or anything else you don’t pay monthly, but comes up on a regular basis.
Half of everyone wouldn’t feel confident if they would be able to come up with even $2,000 for an emergency within 30 days. Paying $2,000 in 30 days becomes heavily reliant on different forms of credit, working more or selling items if you don’t have a savings account at the ready.
Build a savings account with money for periodic expenses to avoid relying on credit to cover periodic or emergency expenses.
2. Long-term thinking
Credit is a short-term fix for money problems that becomes worse over the long term. If you’re able to think ahead and plan for what you need to pay, you can avoid turning to credit when the time comes.
For instance, of that $71 billion, $52 billion came in the final quarter of the year. Seventy-three percent of new credit card debt happened to come in October, November and December and we can all agree it was probably in November and December. That’s right. In three months, America doubled the debt it had put on credit cards over the previous nine! It was also the largest increase in a quarter since 2008.
How did you do last holiday season when it came to credit card debt and how are you doing in your plans for this year?
Put money away each month to cover future expenses. Think about the interest that will be added to your credit card purchases. Leave the present to making sure you’re sticking to your budget, but plan for what you’ll be paying for in the future.
3. Pay your bill in full each month
If you have your credit card debt under control, you should be able to pay your bill in full each month. Not just pay your minimum payment each month, but everything you owe. This makes for a good goal to aim for when you’re paying down your credit cards. If you can’t pay it in full, find as much money as possible to pay off your higher interest cards.
4. Stop using credit cards
Part of creating a balanced budget is to make sure you aren’t taking on any new debt. If your budget looks good, but this isn’t happening in real life, try hiding, freezing or cutting up those credit cards, so they can’t possibly be used to take on more debt.
Paying off credit cards can take a while, but getting used to not using them can be almost as beneficial. If it takes a year to pay off your credit cards, imagine what good spending habits you could learn by not using credit cards for that year.
5. Make a plan to pay off your debt
A wink and a nod of your head won’t make your debt disappear. Making a plan to pay off your debt is important. The easy way to start is to figure out how much your minimum payments are on all your debts. Budget for that and find whatever other money you can. Put that money toward your debt with the highest interest rate.
When you pay that off, roll over that payment to your next highest rate debt. As you roll down your debt, your payment increases from the payment of the debts you have already paid off. If you find extra money through a raise or bonus toss that into the debt payoff and you’ll be saving money on interest by paying your debt off as fast as possible.
Start a budget to help you pay off your debt with Mvelopes.