How to pay off your credit card

Sometimes accidents happen, other times you can find yourself or a family member in the midst of a horrible health scare. An unexpected job loss or, as we all do, you made some bad decisions and ended up racking massive debts. You are surely capable enough to overcome your troubles. Accept your situation and start working to get over it!

A credit card is a helpful tool on our daily lives but also can be really tricky. It gives the illusion you have money, and at the end of the month, you can’t pay the bills. However, here are some simple tips on how to pay off your credit card debts and take back control of your life!

Re-prioritize and program your budget

There are lots of apps that can help you start budgeting and categorizing your expenses, like iSaveMoney, Monefy and Money Manager. These apps are free and you don’t need an account or to provide any other personal data.

Budgeting is an important step to start chasing your financial freedom. Keep track of your income and all the expenses, even the little ones.

If you know where your money is going, you can look for areas to cut back, keeping only the necessary expenses. That way, more money is left to pay your debts.

Try to settle before an account goes into collections

First things first, a settlement is a sum of money that is less than the full amount that you owe. Knowing that, if you have some money and your account is delinquent (when you haven’t paid it in a few months but you haven’t yet defaulted), making an offer is in your best interest.

Once a debt is defaulted, the credit card company takes a loss and sells off your account to a collection agency, often for pennies on the dollar, creating a second black mark on your credit report, on top of the hit for the original missed payments.

Target one debt at a time and always pay at least the minimum

If you carry balance on more than one credit card, make sure you pay at least the minimum on each card. Then focus on paying down the total balance on one card at a time. You can start paying the card with the highest interest rate or the one with the smallest balance.

Paying more than the minimum will reduce the debt repayment period. If you pay an extra bit each month, every dollar over the minimum payment goes toward your balance, and the smaller your balance, the less you have to pay in interest.

Interest is one of the major culprits for the snowball effect, even if the interest rate seems low, with a large debt the amount can quickly scale and get out of control.

You can use a calculator, like this one at NCalculators, to check your best starting option, a high interest rate will not always be your most expensive total amount.

Consolidate your debts

If possible, consolidate your debts, combining several higher-interest balances into one with a lower rate. This way you can pay down your debt faster without increasing payment amounts.

The snowball and snowflake techniques

The goal of taking control of your financial life is to increase your cash flow each month, like a snowball increasing as time goes on. Each debt has a minimum monthly payment. By paying off the lowest balance credit card account first, you remove an entire fixed payment, allowing you to reduce debts and focusing on bigger debts or improving your lifestyle.

Every single penny is important on your balance and every time you get more than a few dollars in your hand, send it in to your credit card company to reduce your outstanding balance. It may sound silly, but every snowball started as a (and is made out of many) snowflake. On long term, you can pay off your debt faster and paying less interest.

Cut up your credit cards

When you have a credit card on your hands, it gives you the illusion that you have spare money to spend. But you don’t! End the temptation to spend your money. Stop using your credit cards if you can’t pay the bills, you don’t want to increase your debts.

Credit cards can be tricky, but they are not evil entities that will destroy your life, unless you let them. Paying off your debts can be easier than you think. Take control of your finances and enjoy the best of life.