Credit cards can be useful, but they can quickly get you into difficult situations. Racking up too much credit card debt can plunge you into a never ending cycle of double digit interest rates and ruin your credit score. This quickly becomes a major obstacle in your journey towards financial freedom. At some point you have to take action, but what exactly should you do? The first question you should ask is . . .
Credit card debt is considered a form of toxic debt because the interest rate is generally pretty high.
Interest rate is the term used to describe what percent of your debt the credit card company will charge you in addition to the “principal”, or original amount of debt. If the interest rate is 20% (which is typical for credit cards), and your principal is $1000, at the end of the month you will owe about $1,017; at the end of the year you will owe $1,200.
There are many ways to go about paying off credit card debt based on how aggressive you can be. Here are two things you must focus on to pay off that debt.
1. Decrease or halt new charges by cutting your expenses.
2. Maximize monthly payments towards your debt.
When your credit card debt is too high, you should consider yourself in an emergency situation. This means that you must not only focus on paying off your debt, but you should scale down your expenses. This helps you accelerate your debt paydown. It also helps you create a lifestyle that can be sustained after paying off your debt.
Here are some big-hitting areas to consider when lowering your expenses:
1. Housing - Can you get a roommate or rent out a room in your current home to decrease your own monthly rent/mortgage?
2. Food - Meal planning and prepping are surefire ways to create a lower and more consistent monthly food budget. Reference online guides or tutorials for ways to squeeze the most out of your food. Depending on where you live, it’s doable to feed 2-3 people with less than $100/week.
3. Entertainment - It may be time to cut the cord on cable or those video subscriptions that choke our wallets every month. This can be a temporary fix or may even become part of your long-term lifestyle.
4. Big purchases- It’s time to postpone upgrading that phone or taking that vacation. When you are paying off debt, it helps to put the money you would usually spend on big-ticket items straight to your debt!
These are just a small sample of the possible areas where you can cut expenses. Look at your own spending habits to identify other areas that may work for you!
Once you’ve identified the most realistic areas based on your life and budget, make sure to send any money you save straight to your monthly payments. If you have any money tucked away in a brokerage,, checking, or savings account, take it out and pay off your debt with it.
When you’re paying an average of 16% on your credit card debt, you most likely will experience a net loss if your savings or investments are earning less than that.
While some people fear an emergency in which they need cash, most establishments in America take credit. You may need enough cash tucked away to survive for a few days, but anything past that will be better used paying off your current debt.
If you are consistent and dedicated, you will start seeing your balance decrease as well as those pesky interest payments!
Other options include looking for additional sources of income - like a part-time job or a side hustle.
You can also refinance your credit card debt. Two easy ways to do this are to get a balance transfer card in order to avoid paying interest for the introductory period or to get a credit card consolidation loan through a private lender such as SoFi or Payoff.
Other, more difficult options include getting a home equity line of credit or borrowing money from your 401k. A more recent alternative involves fintech startups, such as Tally, that offer a lower line of credit while consolidating your debt.
The Debtly app is a new app that facilitates your credit card management experience. Its intuitive UI offers users a credit card consolidation portal to view all your relevant account information in one place - such as your transactions, interest rates, due dates, balances, & interest charges. Debtly also provides a recommendation engine to help guide you out of debt, essentially like a financial advisor, but in your pocket.
The app helps users better understand their situation and allows them to view all of the most relevant information about any of their accounts in one place. The recommendation engine removes the difficulty of the debt relief process. It lays out all options and steps and guides you in completing them. Debtly’s mission is to help you overcome your struggle and become financially independent.
If you would like to try the app, sign up on our website www.debtly.app