What is the best way to reduce my credit card debt?
Credit card debt is more common than you think. According to The Money Charity, the total credit card debt in the UK has reached £65.5 billion – that’s £2,426 per household! But there are a few ways you can reduce your credit card debt
The first thing to do if you want to reduce credit card debt is list all credit cards you owe money on. Of course, you can easily estimate how much you owe, but you can get a much better picture of your financial situation if you take note of exactly who you owe and the amount. Make sure you write down the interest rates and fees for each card too.
Work out your budget
To work out how much you can spend on reducing your credit card debt you’ll need to take stock of your household income and expenditure. It’s important to prioritise outgoings such as your mortgage, utility bills and car costs as they’re seen as ‘necessities.’ Once you’ve taken away your expenditure from your income, you’ll have your ‘disposable income.’ That’s how much money you have to play with at the end of each month – so you know how much you can afford to pay back on your credit cards.
It’s an obvious one, but prioritising the credit card with the highest interest rate will come in useful in the long run. The Snowball Effect means you pay the biggest chunk of money on your card with the highest interest and the lowest amount of money on your card with the lowest interest. This is one of the quickest ways to get rid of credit card debt and avoid high interest rates. As an alternative, you could pay off the card with the lowest balance or lowest interest rates and pay smaller amounts on the bigger cards. Although this isn’t as cost-effective as the Snowball Effect, it can work wonders psychologically, giving you the motivation you need to clear your debt.
There’s another way to reduce your credit card debt which can really have an amazing psychological effect. You can actually trick yourself into thinking you’re paying your debts off sooner with the Payoff Plan. If you receive any extra money whether it’s a gift, windfall, work bonus, pay rise or inheritance, use it to pay off your smallest credit card debt. This will give you a huge sense of achievement and will put you in the right mind frame to pay even more of your credit card debts off. If you have multiple credit cards and you have paid the smallest debt – then use the money that you’d normally pay on that card on the next card! Putting extra money towards paying off other debts is an incredible way to reduce credit card debt fast.
Start paying in cash
Wherever possible, stick with paying for things in cash rather than on a credit or debit card. This can make you more aware of your spending and can help you stick to a budget. If you’re doing a food shop in-store then leave your cards at home and take cash with you. You’ll soon find that it’s much easier to stay within your budget if you only have a limited amount of cash to spend. This can also help curb impulse buys and save you hundreds in the long run.