The debt spiral is very real. You want to enjoy life or you run into a financial emergency and you use your credit card to help. You probably have every intention of paying it off, but you can’t because your paycheck is already going to cover other things. So you create a balance on your credit card.
And then that card is full. You still have things you need to pay for and no extra cash, so you get another card. And the cycle continues. Soon your financial problems are spiraling out of control.
It’s not an uncommon scenario. But knowing that others are trapped in the same debt spiral doesn’t make it any less frightening or stressful. The trick to stopping the merry-go-round of credit card debt is not a trick. If you want to eliminate the debt you owe on your credit cards, you just need to know how to deal with it.
Step 1: Understand the Problem of Interest Rates and Minimum Payments
It’s easy to spend money using credit cards. It’s a lot harder to get free of the credit card debt that comes after the spending. As any credit counsellor can tell you, the problem is in the interest rates.
Credit cards don’t work like traditional loans. In the world of banking, you can take out a personal loan that includes a set amount of money for a set amount of time. In return you will be asked to pay a set amount every month and at the end of the monthly payments your loans are paid in full.
But a credit card isn’t a one-time loan with a fixed payment schedule. It’s a line of credit with a very high interest rate. You are expected to pay off what you’ve spend every month. If you don’t, you will be hit with a high internet rate penalty that raises the amount you’re supposed to pay.
Every month the amount you’re supposed to be paying goes up, and if you’re making the minimum payments you won’t make a dent in the credit card debt. You’re not paying much more than the interest every month, perpetuating the credit card debt cycle.
Step 2: Spend Less
So if you fill up your credit cards and then make minimum payments you’re not going to break out of the cycle you’ve created. If you’ve been using credit cards as your emergency fund, you probably don’t have much leverage. But to break free of credit card debt, the first step is to simply stop using credit cards.
Spend less. Find ways to eliminate the credit cards from your monthly budget. That might mean altering your monthly spending habits or even moving to a less expensive area. Until you can stop using the credit cards, you can’t resolve the credit card debt.
Step 3: Pay More
Once you have stopped spending with your credit cards, the debt and the interest rate fees don’t go away. You can keep making minimum payments, but the high interest rates that incur monthly aren’t going to let you get ahead on the payments.
To get ahead on the credit card debt, you will need to find ways to pay more toward your debt every month. How? There are several ways you might attack the debt.
Reduce the interest rates. If your credit score is high enough, you might be able to open a new credit card with a zero percent introductory rate for a limited time depending on the credit card company. Transfer the expensive debt over and your regular payments will go farther.
Set up monthly payments. Personal loans can work as a debt consolidation loan. Take out a loan, pay off all of the credit cards and then you’ll have a fixed debt with a fixed monthly payment. Pay all of the payments and you’ll be debt free.
Make more money. Pick up some extra shifts at your current job or take on seasonal employment. Every new paycheck that hits your bank account goes straight to wiping out your debt.
Pay off one card. Any extra cash you find should all be used to pay off the first card. Then you have extra money to help pay off the next. Simply pay off the first and apply the monthly amount you were paying to that card to the next. Eventually you’ll roll increasingly higher payments across all of your debt and wipe it out.