Credit card debt is a major issue for a lot of parents. Let’s face it having children is expensive and income is often reduced as parents take a break from the work force or return to work part time. However, like most things, when used wisely credit cards can be a handy tool in managing your finances.
My number one tip and the key to success when it comes to using credit cards, is to ensure that the balance is paid off in full every single month. For us, we have found setting up a direct debit through internet banking as the best way to ensure this is done. My other key strategy is to only ever have one credit card. This makes it easy to keep track of our spending.
But if you already have a credit card debt what is fastest way out? Here is my simple four-step plan to get you out of debt and back on track:
(1) Identify how much credit card debt you have. You can’t fix a problem until you know exactly how big it is. Be real with yourself, take a good look at your statements so you know how much you owe on each individual card and add them up so you know the total. The reality of the total figure might surprise you and give you further motivation to rid yourself of the debt.
(2) Find out what is the interest rate you are paying on each card. The big secret the credit card providers don’t want to tell you is that credit card debt is crazy expensive! Most charge interest rates of 19% or more! Compared to official interest rates of 2.75%, it is massive rip-off! You’ll find your interest rate on your statement. If you can’t find it, ring up your provider and find out.
(3) Ramp up your repayments. Here’s a shock, paying the minimum credit card repayment will not be enough to get your debt paid off. All credit card statements now tell you how long it will take you to pay off your card if you only make minimum repayments. When I last checked mine, it would take me 64 years and 7 months! Let’s just say it’s much longer than my expected lifetime! The only way to get rid of the debt is to increase repayments as much as you can, prioritising the card that charges the highest interest rate first. Some prefer to pay off the smallest debt first, to get a sense of achievement. This is a valid strategy too.
(4) Get rid of your cards. While you are paying down the debt, cards should be placed in a safe place (not in your wallet!) or cut up. However, as each card is paid off you must remember to close the account so you are no longer charged annual fees or reward membership fees if they apply.
Credit card debt is a financial noose around your neck. Getting rid of your credit card debt is a huge achievement. By following the steps I have outlined you will get there. Then with the money you save in interest you can then focus on building your savings and working towards financial freedom.