One of the most frustrating financial situations to overcome is credit card debt. It’s something that many Americans are dealing with these days, and for most people it’s a very hard situation to overcome — but it is possible. If you dedicate yourself to the task, make a plan, and commit to saving money, you can learn the art of conquering credit card debt and making progress on the path toward financial freedom.
Understand You’re In a Race Against Interest
It’s vital that you understand that paying down credit card debt is a race against interest. Interest charges slow you down — like little speed bumps every month — because when you pay interest it doesn’t help reduce your principal balance. Interest is the price you pay just for the privilege of borrowing. As such, it doesn’t provide you any benefits, it just takes money from your pocket that could be going toward paying down the original balance.
Credit card interest can be especially difficult to deal with because it comes with such a high rate. If you owe $3,500 on a credit card this month, your interest payment might be $55.42 if you have a 19% APY compounded monthly, for example. Now, say your minimum payment is $105. If you pay only the minimum, you aren’t reducing your debt by the entire $105. Instead, you are only reducing it by $49.58, since the interest portion of the payment is $55.42 and the interest does nothing to reduce your debt.
In this example, when you pay only the minimum payment, less than half actually goes toward reducing the debt, thanks to the high rate of interest! That certainly doesn’t help you on your quest to become debt-free.
You can reduce these frustrations by reducing your rate of interest. How? Start by calling your credit card issuer and seeing if you can negotiate a lower rate. They won’t always say “Yes,” but you’d be surprised at how often they’ll be willing to work with you, especially if you have a history of on-time payments.
Also consider transferring your high-interest credit card debt to a different card with a 0% APR introductory offer. While these offers depend on you having a fairly good credit score, they can use that introductory period to get ahead (without interest charges) on your debt. And you could always do another balance transfer when that introductory period is over (just be aware of all hidden fees and costs). A lower interest rate, combined with a commitment to pay more than the minimum each month, can boost your efforts, helping you save money and helping you pay off your debt faster.
Stay Patient and Keep Fighting no Matter What
It can be hard to pay off credit card debt, but you need to stick with it. To boost your motivation create a debt reduction plan that you can stick with, and then keep fighting the good fight. Remind yourself that all worthwhile endeavors take time. You can encourage yourself along the way by using a Goal Challenge or Dream Board. Setup credit card debt pay-down milestones and have a small celebration as you pass them. It’s important to recognize your progress so that you have the motivation to keep fighting.
Get Support from Friends and Family
You might be surprised at how much it can help to cultivate a good support system. Let your friends and family know what you are doing, and ask them to help you. Your loved ones can help you stay on the right track by agreeing to low-cost entertainment options, and checking in to make sure that you are on track.
You might even inspire them to tackle their own debt! If you have others in similar situations working toward the same goals you are striving for, it can provide you with support and motivation. There’s nothing like having a debt buddy who can cheer you on.
Change Your Attitude Toward Spending
None of this will work permanently unless you make changes to your spending. View your credit card debt as a symptom of a wider spending problem, and make sure you tackle that spending problem while you are paying down your debt. Credit cards allow you to make purchases based on a loan. But by using money you already have, you can rely on your own finances, and pay for things without the worry of repayment or interest.
Your changing money attitude will help you pay off your debt faster, and you are more likely to stay out of debt once you reach your pay-down goal.
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