About half of all Americans owe money to at least one credit card company. The average person owes almost $3,000 in credit card debt. It isn’t unusual for people to get into serious debt. Some rack up $10,000 or more on revolving credit accounts. Revolving accounts are credit accounts that automatically renew as you pay the balance. These kinds of accounts make it easy to get into debt. But how can you get out of credit card debt fast?
In this article
- 1 How Much Do You Owe?
- 2 What Got You Into Debt?
- 3 What Can You Do to Improve Your Income?
- 4 What Can You Do to Cut Expenses?
- 5 How Can You Make a Budget That Works?
- 6 Can You Cut Up the Cards and Cancel Lines of Credit?
- 7 Do You Know the Difference Between Secured and Unsecured Debt?
- 8 What Kind of Payoff Plan Actually Works?
- 9 Why is It So Important to Get Out of Credit Card Debt Fast?
- 10 Can I Get Help From Credit Counseling or Debt Settlement Firms?
How Much Do You Owe?
First, you need to be realistic about the amount of debt you’re in. Unfortunately, there is no easy way around this. You have to add up everything you owe on credit cards. It can be scary to see that big number! But this is an important first step in finding out where you are and developing a plan to get out. Right now, concentrate only on what you owe revolving credit companies. This includes department store cards, Visa and MasterCard, and other unsecured debts. If you aren’t sure what “unsecured” debt is, that’s okay, too. We’ll discuss that in a moment.
What Got You Into Debt?
This might be as hard as the first step. You have to be honest with yourself about what got you into trouble. Sometimes, it’s something unavoidable, such as losing a job. Other times, getting into debt was avoidable and all you need to do is change your behavior. For example, you might be eating out too often. Maybe you try to comfort yourself by buying lots of clothes or tech gadgets. You need to identify what is causing you to spend more than your income so that you can fix the problem.
What Can You Do to Improve Your Income?
More income is a great way to get ahead and pay off your credit card debt faster. Perhaps you could sell off a valuable collection you can live without. Maybe you could have a garage sale and get rid of some stuff you don’t need anymore. You can also sell stuff like Blu-rays and video games on eBay or Amazon. These are excellent ways to get a chunk of cash to catch up on bills. You can also use it to knock out a big chunk of debt at once, which can be a great motivator to tackle the rest. You can also consider taking on a second job (or getting the first one if you’re unemployed!).
If you’re married, perhaps both of you could get full-time jobs until you pay off the debt. One of you might even pick up a part-time job, like delivering pizzas or taking shifts at a store or restaurant. The important thing is that all your extra income goes to the credit card debt.
What Can You Do to Cut Expenses?
For a while, you need to cut out all spending that isn’t essential. Learn to cook a few simple, inexpensive meals at home. Start getting movies from Redbox instead of going to the theater. Play games at home instead of going out. Let cable or satellite TV go and get Netflix and Hulu instead. Find any and every way you can to avoid spending money. Then use the money you don’t need for rent, car payment, utilities, and other essentials to pay your debt. Every dollar you pay gets you one step closer to being debt free! Some people even make a game out of it. Challenge yourself, your roommate, or your spouse to see who can cut the most expenses.
How Can You Make a Budget That Works?
Making a monthly budget isn’t that hard. It’s best to do budgets by the month, because most bills, such as rent, utilities, credit cards, car payments, and insurance premiums, are due monthly. Add up your monthly income: paychecks, child support, or anything coming in every month.
Now, add up all your other expenses. For now, just use the minimum payments for each of your credit cards. Don’t forget to plan ahead for expenses that don’t come every month, such as license plates or taxes. Subtract your expenses from your income, and that’s what you have left over every month. If this is a negative number, you need to get your income up and your expenses down to make this plan work.
Can You Cut Up the Cards and Cancel Lines of Credit?
Before you start paying off your credit card debt, it’s important to say, “Enough!” Don’t open any additional lines of credit. You may even want to cut up some of your credit cards. This doesn’t mean you should close the accounts, which would probably hurt your credit card. Just stop using the credit cards. As you pay down your credit card debt, your debt to credit ratio will improve, which will increase your credit score.
Some financial advisors suggest building your savings before you start putting extra money towards paying off your debt. That way, if the car breaks down or the AC goes out, you’ll have enough money on hand to get you through the difficult situation – without taking on more debt. A good emergency savings fund is $1,000. This is usually enough to handle emergencies like an insurance deductible or co-payment.
Other financial advisors point out that having a small emergency fund is smart but that anything over two to three months’ worth of expenses should go toward paying off debt. After all, a large emergency fund when you have substantial credit card debt is just an expensive and imaginary safety net. They recommend paying off credit card debt as soon as possible and using the balance you free from your line of credit as an emergency fund when, and if, it is totally necessary.
Do You Know the Difference Between Secured and Unsecured Debt?
When paying off debt, you need to know the difference between secured debt and unsecured debt. Secured debt is a debt that has something attached to it. For example, a home mortgage is a secured debt, because they can take your house away if you don’t pay for it. A car loan is another example of secured debt. An unsecured debt is a debt with nothing attached to it. For example, credit cards are usually unsecured. They can’t actually take anything away from you if you don’t pay the bill. The exception is if you file for bankruptcy, but we’re going to do everything possible to avoid that!
Why is it important to understand this difference? Because you want to avoid converting unsecured debt into secured debt. That means you should try to avoid paying for credit card debt by refinancing your mortgage loan or getting a home equity line of credit. If you lose your job and can’t pay your credit card bills, the worst thing that can happen is that you ruin your credit. If you can’t pay for your house, you’re homeless! So never take on secured debt to pay for unsecured debts.
What Kind of Payoff Plan Actually Works?
The best plan for paying off credit card debt begins with your budget. After the bills, groceries, gas, and other necessities how much do you have left? This is the amount you should pay toward the credit card with the highest interest rate until you pay off all your accounts.
Another method is to pay off the smallest credit card debt you owe. Why pay the smallest first? Because you’ll pay it off the fastest. After paying your first credit card fast, it motivates you to knock out the next. Pay only the minimum payment on all the cards except the smallest. When you pay one off, add the amount you’ve been paying on it to the minimum you’ve been paying on the next highest. Each time you pay one off, all that extra money in the budget goes toward the next highest bill. Before you know it, the credit card debts disappear one by one.
Why is It So Important to Get Out of Credit Card Debt Fast?
Carrying lots of credit card debt damages your credit rating. It also takes much longer to pay bills off when you never make more than the minimum payments. That means that you end up paying many times what you owe in interest. Depending on how much you owe and the interest rate, you could pay more than double what you first charged! Credit card debt also stands in the way of a secure financial future. Those without huge debts are more likely to own a home, drive a reliable car, and pay lower interest rates. People with good credit get lower rates on insurance, phone plans, and even satellite TV. Getting rid of debt means you can retire earlier and enjoy your retirement more.
Can I Get Help From Credit Counseling or Debt Settlement Firms?
As you can see, there’s a lot to getting out of credit card debt fast! You may have lots of questions. Or, you may be struggling to make the minimum payments on your credit cards. You aren’t the only one in this situation. Each year, thousands of people reach out to debt settlement companies for help.
Debt settlement companies negotiate directly with your creditors to reduce your debt in exchange for a lump-sum payment. These companies don’t charge any fees until they settle an account. Click here to get a free consultation with a senior debt analyst. There is no obligation to join a debt settlement program and it won’t hurt your credit to find out what your options are.