Buried in Credit Card Debt? Here’s How To Dig Yourself Out.

Buried in Credit Card Debt? Here’s How To Dig Yourself Out.

December 1, 2019
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Are you in over your head in credit card debt? It’s easy to feel as if you are drowning and there’s no way out. Fortunately, there are ways to get out of debt without letting it ruin your life.

It may feel overwhelming, but with a little planning and discipline, you can use these easy-to-understand methods to eliminate your credit card debt once and for all. Where Should you Start?

This is often the hardest step – getting started. As you start at the mountain of debt, it can feel insurmountable. You just have to start dealing with debt. Grab a paper and pen and start creating your plan.

Stop using your credit cards

This step is crucial. You can’t get out of credit card debt until you stop using your cards. Lock them up in a safe or give them to a trusted relative if you will be too tempted to use them. You must take this step before moving on.

Make a list of your debts

This step may hurt a little. It’s time to get real with yourself. Write down the total amount of debt on each card, its APR, and the minimum monthly payment. You’ll use this list to create your plan.

Prioritize your debts

Now it’s time to plan. Choose a card to focus on paying down first. It can be the card with the lowest balance, highest balance, or the card with the highest APR. You choose what bothers you the most.

Some people are motivated by little successes. Paying off a small credit card may motivate them to keep going.

Decide how much you can pay

Look closely at your budget. How much money do you have to pay toward your credit cards? You’ll need to pay the minimum balance of every card, with any extra money paid toward the card you chose as the priority.

Keep the cycle going

Continue focusing on the prioritized credit card until you pay it off in full. Then take that amount plus the minimum payment on the next card in line and pay that balance down. Keep the cycle going until you pay all of your credit card debt off. Lifestyle Strategies you Need When Dealing With Debt

While you pay down your credit card debt, it’s important to focus on your lifestyle. Ask yourself what got you into the situation in the first place. Where did you spend your money? It’s time to get honest with yourself.

Here are a few common areas you may be able to cut down:

  • Coffee stops
  • Dining out
  • Impulse Shopping
  • Beauty appointments (nails, hair, etc.)
  • Digital Subscriptions

Of course, each person will have a different area that they overspend. Take the time to look at your credit card statements over the last year to have a true understanding.

Want to dig a little deeper? Look at your house. Do you live beyond your means? Could you downsize and use the proceeds to pay off your debt? What about your cars? Do you have more than you need? Is your car more expensive than is necessary? Really dig deep and look for areas that you spend needlessly and could cut down when dealing with debt.

Alternative Options When You Have No Choice

Sometimes, we get so far in over our heads that getting out of debt ourselves isn’t achievable. When that happens, it may be time for more drastic measures:

Debt consolidation

If you have equity in your home, you may be able to use it to pay off your credit card debt. Yes, you’ll still owe the money, but in a more affordable manner. Consolidating the debt puts it all in one place. You have one payment and one interest rate, which is typically lower than any credit card interest rate.

Debt restructuring

If you don’t have equity in your home or don’t qualify for a home equity loan, you may need to restructure your debt. With this method, you work with a credit counselor that will restructure or negotiate your debts for you. Together you figure out how much you can pay each month toward the debt. You then make one payment, which gets distributed according to your chosen plan.

Because you aren’t paying your debt as agreed, debt restructuring can damage your credit score significantly. It usually takes 3 – 5 years for your credit score to increase after satisfying your debts in a debt-restructuring plan.

Bankruptcy

As a last resort, you may need to file bankruptcy. There are two types – Chapter 7 and Chapter 13. Chapter 7 dismisses your outstanding debts after liquidating any assets you have to pay the creditors. Chapter 13 bankruptcy sets up a repayment plan which you pay monthly. You have an assigned trustee that oversees your account and ensures that all creditors receive payments.

Because you don’t repay the debt in a Chapter 7 bankruptcy, it can damage your credit score quite a bit. It will also stay on your credit report for 10 years. While it won’t affect your credit score for that long, it’s still there for future creditors to see.

A Chapter 13 bankruptcy falls off your credit report 7 years after the filing date. Because you paid the debts in this plan, it doesn’t damage your credit score as much, but your score may still fall. Future lenders look at Chapter 13 BK more favorably because you still made good on your debts.

Break It Down & Stay Focused

Dealing with debt can seem overwhelming, but there are solutions. Take your time and break things down. Focusing on one debt at a time can help you get the process going. While you won’t get out of debt overnight, with consistent effort, you can get yourself out from the feeling of drowning in debt.

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