After years of living and enjoying life, it’s all too common for us to find ourselves in credit card debt. In fact, the average household has over $18,000 in credit card debt. If you find yourself with credit card debt it’s ‘normal’. But if we’re being honest, ‘normal’ is not fun.
Credit card debt can grow out of control if it’s not intentionally managed and paid down with focused intensity.
The thing is, many of us use credit cards as an emergency fund. While that can help temporarily, it turns an emergency, like a required car maintenance issue, into a financial problem.
There are many ways credit card debt can add up, but how can you begin to address it and get it paid down?
Before we dive in – If you want to speak with someone about addressing your credit card debt click here to schedule a 15-minute call with a financial coach. The 15min call is free.
Things that aren’t as helpful as people may lead you to believe:
- Debt consolidation for a lower payment, lower rate, or single payment:
- While debt consolidation may reduce your monthly payment or lower your interest rate, those things alone will not get you out of debt or get the debt paid off. They are temporary fixes at best. What often happens is that debt continues to grow because it feels like progress… when it’s not.
- Transferring balances from card to card:
- Now, this is something I have even done myself in the past. The downside of this is that while you may save some interest you are often hit with a balance transfer fee. Those fees are added to your debt. So in an effort to do something good you may actually create more debt.
- Hiring a debt management company:
- When it feels like you have no other option these companies will promise you the sun, moon, and stars. They say they will help you pay only a fraction of your debt balance and get it all behind you. Best of all, it will only cost you $X per month. Here’s what they do. They stop payments on all your debts while they collect the monthly payments from you. After several months of no payment the companies you owe money to may be willing to settle the debt and get some money instead of no money. This is not without its own issues. One of them being your credit history and credit score will take a serious beating. This is something that you could do yourself.
Things that are very helpful and 100% effective.
Create a plan of attack and execute!
The best way to get out of credit card debt is to address the debt as part of a complete financial game plan. It certainly wouldn’t make sense to pay every dollar you have to credit card debts then have your car repossessed for not making those payments or getting evicted or foreclosed on for not paying your rent or mortgage.
Creating financial margin in your budget to free up dollars to use to pay down debt is important. This may mean cutting non-essential expenses. Therefore, having an overall plan to reach your financial goals is key.
Here are a few things to keep in mind while creating your financial plan.
- Take care of yourself and your family first. I do not mean nice vacations and the best of things for the kids (if you have any), I mean the essentials. Before you do anything else you should pay your utilities, housing, food, and transportation costs. This is good because we know you will have a place to stay, food to eat, and you’ll be able to get to work to keep earning money. An excellent start for many!
- You set the priorities. If you can’t seem to pay all the bills, then it’s time to decide who is getting paid and who isn’t. You may not be able to pay all your minimums, so you’ll have to prioritize. Use the information below for starters.
- Pay secured debt first. A secured debt is one with an asset tied to it, like a mortgage or a car. You want to make sure those are paid and current because if not, they can come take the asset. However even if they do come and take the asset, like repossess the car, it doesn’t just make the problem go away. You may still be responsible for part of the debt. It’s just a bad deal. You may find you can’t afford to pay all your secured debts, if that’s the case you may need to sell the asset.
- Pay unsecured debts too. This is where you’ll address those credit cards. Round up as much money as you can each month by cutting back on spending and make big payments to your credit cards each month.
You can use the information above to begin to create your financial plan and take control of your financial life. If you are still in doubt about how to address credit card debt and believe you could benefit from reviewing your situation with a financial coach you can get started below:
Click here to schedule a 15-minute call with a financial coach. The 15min call is free.