Paying off credit card debt is challenging, especially with spiraling interest rates. The average American household owes $4,878 on their credit cards, and revolving debt in the U.S. totals a whopping $856.5 billion. On top of that, military personnel and their spouses usually owe more than civilians. If you are scared every time you get a statement in the mail, then this article is for you.
There are time-tested ways to develop a battle plan against credit card debt. Ideally, you wouldn't incur it in the first place, but the perfect is the enemy of the good, especially in these days where many of us face difficult situations: unemployment, medical issues, or foreclosure. Military families face a unique frustration: the cost of frequently moving to the next deployment.
Don't despair, because you can definitely start paying off your credit card debt today, even if you owe more than the average American household. I'll explore how to pay off credit card debt by creating a budget, getting into the habit of paying off debt, comparing interest rates so you'll pay off the card with the highest interest rates, earning extra income, and staying motivated so you can keep on the path out of debt.
Create A Budget
When you're creating a budget, there are a few factors to consider before you even begin with your credit card payments. First, do you have an emergency fund? Are you paying into your savings? How much do you need to save for your next deployment or move? After you factor in those considerations, then think about how much money you can put towards your credit card debt.
The Power of Habit
Now that you've created your budget and decided how much you can spare to attack your credit card debt, make it easier for yourself to pay debt. Automate the payments with your bank so you are always paying more towards your debt. Make sure it's more than the minimum amount required -- or even better, that month's balance.
Personal finance guru Dave Ramsey popularized the idea of the debt snowball. With the debt snowball, you pay off your smallest debt. Once you earn the satisfaction of getting rid of one debt, you'll be motivated to keep going.
Compare Interest Rates
Once you've paid off your smallest debt, no matter what it is, you're ready for the big time! Get to know the interest rates your credit cards are charging. Which one has the highest interest rate? Try to pay that one off first, because you're losing money with higher interest rates. Every time you're hit with a finance charge for your outstanding balance, you're making your bank account cry. If you have high interest rates on all your debt and have good credit, you might want to try consolidating your debt to get lower interest rates.
Earn Extra Income
Most people believe that if they have a full-time job, then they have achieved financial security. Because I have been both a freelancer and employed at a company, I have a slightly different take on it. While working full-time seems secure, freelancing has taught me having only one job is inherently unstable. After all, if you only have one job and you lose it, then you also lose your only source of income.
That's why having an alternate source of income is important. There are many options available these days: freelancing, renting out a spare room, renting out your car, or taking on a second job. These days, even white-collar professionals take jobs at Starbucks to ensure an extra stream of income (and they provide benefits). By earning extra income, you're diversifying your financial resources and leveraging the money towards your debt. It's a win-win situation.
No matter how much credit card debt you have, we know you can pay it off. Motivation comes and goes, so be sure to reward yourself every time you make a payment or pay off a major debt. You'll probably fall off the wagon at some point, but don't punish yourself too much for it. Just make sure you make that next payment.
Get to know other folks in the same situation, because no matter how difficult your situation is, there's probably someone who has gone through the exact same thing and survived. We've all been there, and we know it's hard. You can do it.