The average American household carries credit card debt of over $15,000. That can be a gigantic headache. Credit card debt can keep consumers from saving as they struggle to pay annual interest charges. Credit card debt can keep people from saving for retirement, for purchasing a home or for college for their children. Below, we’ve outlined six easy ways to reduce credit card debt.
Making a budget, tracking and reducing spending, using credit cards less and seeking better interest rates are all excellent ways to reduce credit card debt. Staying motivated through taking simple classes in personal finance will give someone an energy burst to tackle all of them.
One of the biggest reasons people get into debt and stay in debt is that they don’t spend consciously. Spending unconsciously means there’s no plan for spending, so money gets spent haphazardly whenever a need arises. Not paying attention to where the money is going over time can result in a big pile of debt that sneaks up and surprises you.
The trouble is, it’s tough to keep track of the flow of money in and out of a bank account over long periods of time. Most people don’t naturally think long-term and they’re even worse at tying short-term behavior into long-term goals. That’s because the pace of daily life can push things like how much money we’ve spend each day for three months straight out of our heads.
A budget solves this problem by turning spending into a conscious activity controlled by conscious decisions. A budget is a way of taking all the money that comes into someone’s life and dedicating it to certain categories like groceries, gas, food, rent, bills and savings. With a budget, dollars are given places to go before they even come in through the door. At its simplest, a budget is just a list of all the things someone needs to spend money on, matched to their income. Think of it like packing for a trip. Someone who has no idea how big their luggage is might pack too much and then get a nasty surprise when they see the size of the suitcase they’ll be bringing, whereas someone who lays their suitcase out first and then starts packing will know exactly how much room they have. The second person will be a lot less likely to pack things they know they won’t be able to fit.
A budget is just like a suitcase, but instead of packing clothes and shoes and toiletries, you’re packing in the things you want to spend money on. Once someone has a budget in place they’re less likely to overspend and grow more credit card debt. Even better, someone with a budget can include monthly allocations to pay down the debt in it.
Budgeting can be a little complicated. Luckily there are some great budgeting tools and apps out there to help. See our article on how to make a budget to get started.
2. Track Spending
Tracking spending is a great way to reduce credit card debt. It may seem like actions such as budgeting and tracking spending won’t help cut debt and that instead they’ll only prevent forming future debt. Not so. Tracking spending can cut credit card debt because once people start measuring something they generally start improving it. If someone knows they’ve spent $1,000 a month on purchases every month for the past three months, it can become a sort of game to see if they can spend $900 the next month and maybe even $500 the month after that. By contrast, someone who doesn’t know how much they’re spending month to month is at the mercy of chance.
The reason tracking spending helps cut credit card debt is because once the process of tracking spending turns naturally into the act of cutting spending, there’s more money in the budget to put toward paying down the debt. Check out our article on the eight best expense tracking apps here.
The less someone spends, the more of their income they can put toward paying down old credit card debt. Reducing spending is the logical next step after creating a budget and tracking spending. Really cutting spending begins with budgeting, because the budget planning process is where someone makes all the decisions about where those spending cuts will happen. For example, during budgeting, someone might note that they’ve been spending $500 a month on groceries. They might decide that’s too much and use their budget to plan to spend only $350 a month on groceries in the future. They might decide those price reductions will come from buying more supermarket brands and eating beans once a month.
While budgeting, consumers can also look at entertainment costs like going to the movies or eating in restaurants. They can also look at other places they’re currently spending money, such as stopping in at Starbucks every morning or grabbing breakfast on the go.
Expense tracking, budgeting and reducing spending all go hand in hand to help cut credit card debt. Expense tracking gives people a picture of where they are. Budgeting creates a map to where they want to be. But the real reductions in credit card debt happen when the budget is put into action. It’s not enough to track spending and then make a budget to plan to reduce spending. Consumers have to decide every day to stick to their plan to cut the credit card debt.
One great way to reduce credit card debt is to put the credit cards away where they’re not a temptation. This works even without budgeting or tracking spending, but it works even better in conjunction with them. Tracking spending and making a budget are one thing, but it can be hard to stick to the plan. Leaving the cards at home in a drawer is one way to keep from spending money on impulse, which accounts for a big percentage of annual spending by Americans.
5. Get Better Rates
Consumers can reduce credit card debt by transferring balances to lower rate cards or by negotiating better rates with credit card companies. Credit card debt of $15,000 on a card with a 29% annual percentage rate will rack up $435 a year in interest charges. Someone who’s only able to make the minimum payments will wind up in more debt every year even if they stop using their cards altogether. Lowering the interest rate can be the difference between credit card debt that keeps on growing and credit card debt a borrower can chip away at until it’s gone.
6. Stay Motivated
One of the biggest challenges for someone trying to reduce credit card debt is staying motivated. It’s not really all that hard to make a budget, track spending and reduce it, hide the credit cards and negotiate better interest rates. What’s hard is keeping it up month after month. Keeping track of finances can start to feel tedious and difficult. It’s hard to keep the motivation going.
One way a lot of people manage to stay motivated is by getting support. This can come from enlisting the aid of a spouse in the fight to reduce credit card debt. It can also come from seeking out books on reducing debt or watching videos or taking classes. Financial guru Dave Ramsey offers classes in personal finance that can give a needed boost to someone’s energy level. There are also several online personal finance classes available, like Utah State University’s online family finance class or CNN’s online Money 101 course. Classes like this can give someone the tools they need to succeed in their struggle to reduce credit card debt, but they can also renew someone’s vigor for attacking their money troubles and turning them around for good.
Source: Controlling Your Personal Debt – CNN.com