For many, the beginning of the school year means settling back into a routine with anticipation as the fall chill dissipates summer heat. Before we head too far into the colder months of the year, you might be looking to pay down credit card debt before the holidays get underway.
To get started on a path to debt-free success, follow these steps to a financially healthier fall and winter.
Stop Using Your Cards
The first thing you should do when paying off your cards is to stop using them. Getting on a budget can help you understand where your money goes each month. To begin, add up all your expenses and your monthly take-home. Once you know how much you need to put toward your household expenses, groceries, and car payments, you can allot a certain amount to your credit card debt. This will likely mean tightening up spending, but the financial freedom from debt will make it worth it.
Pay More Than the Minimum
Always be sure to pay at least the minimum amount due. However, paying more when you can will reduce your balance faster and lessen the impact of interest.
Debt Snowball vs. Debt Avalanche
Two types of popular repayment methods include the debt snowball and the debt avalanche.
Here’s how they work:
- Debt Snowball: With this method, you pay the minimum on all your cards except the one with the smallest balance. On that card, pay as much extra as you can until it’s gone. Then move on to the next smallest balance, repeating the process until all debts are paid off.
- Debt Avalanche: While similar, this method has you pay the minimum on all your cards except the one with the highest interest rate. Much like the debt snowball, you would pay as much extra on that card until it’s paid off and move onto the card with the next highest interest rate, and so on.
Debt Management Plan (DMP)
Paying down debt can be challenging and overwhelming, so meeting with a credit counselor can provide guidance. They can also enroll you in a debt management plan, allowing them to work with your creditors to consolidate your credit cards into one affordable monthly payment while also lowering your interest rate. DMPs are designed to allow you to pay down your debt in three to five years in a supportive structured program, ultimately allowing you to reclaim your financial independence.
Avoid Debt Settlement
While debt settlement companies may seem like an option, we don’t recommend them. These for-profit organizations often ask you to stop paying your credit cards while they negotiate with lenders, which can lead to penalties and a lower credit score. On top of that, their services usually come with high fees. Instead, consider the strategies above to protect your credit and stay on track with repayment.