Credit cards are convenient, but if you don’t stay on top of them, your debt can get out of control. If your credit card debt has reached $30,000, that should be a big-time wake-up call.
Now, you need to figure out what to do.
A recent GOBankingRates survey said about 14 million credit card holders had balances of $10,000 or more. One-third of Americans believe it will take them two years to pay off their credit card debt, and 3% believe they’ll never be able to get out of debt.
No one is saying it will be easy, but it can be done.
If you owe $30,000 in credit card debt, or more, there is a way to greatly reduce or even zero out your debt. It will take effort, discipline and, perhaps, some outside help, but you can make it if you do the following:
- Make a list of all your credit card debts
- Make a budget
- Create a strategy to pay down debt
- Pay more than your minimum payment whenever possible
- Set goals and timeline for repayment
- Consolidate your debt
- Implement a debt management plan
1. Make a List of All Your Credit Card Debts
Knowledge is power, even – or especially – if it’s knowledge you wish wasn’t true. You need to know exactly how much you owe and to whom. You need to make a list that includes each credit card balance, minimum payment, interest rate and due dates.
Whether you use a digital spreadsheet, a Word document, or a piece of notebook paper, make this list in a way that you can access it easily and keep track monthly. Breaking it down into its parts will put you in control and make it less overwhelming, and it will enable you to create a plan to pay it off.
2. Make a Budget
Now that you know exactly what you owe, creating a monthly budget is a big step to paying down your debt. If you’ve never operated on a budget, creating one may sound like an unpleasant task. You need to look at it differently. A budget puts you in charge of your finances instead of the reverse.
Get a spreadsheet or piece of paper and list the money you have coming in and your expenses for each month. Be as complete and precise as possible: housing expenses, food, utilities, transportation, insurance, phone/internet/television, minimum credit card and loan payments, plus any other recurring expenses. Examine your bank and credit card statements to make sure you’re including everything. There are a lot of tools that can help you put together a budget, including InCharge Debt Solutions’ freeonline budget calculatorand InCharge’sBudget Spreadsheet.
Be looking for ways you can reduce expenses, such as dining out less often, cutting back on entertainment or eliminating services or subscriptions you aren’t using often enough to be worth the cost. They’ll become affordable after you eliminate these debts. Re-evaluate your budget as your circ*mstances change.
3. Create a Strategy to Pay Down Debt
Having identified how much money you have per month to attack your debt problem, make a game plan so you can do it effectively. Two popular methods are the debt snowball and debt avalanche strategies.
With the debt snowball strategy, you attack your smallest balance first by paying extra each month toward that card, while making minimum payments on the rest. After paying off that first card, attack the next-smallest debt, and so on. Seeing this progress should motivate you to keep going until all your card debts are eliminated.
The debt avalanche strategy involves attacking the balance with the highest interest rate first. When that card is paid off, attack the next highest-rate debt and so on. The advantage is that this strategy usually reduces long-term costs the most.
What’s right for you? The debt snowball is helpful if you have many credit card debts and could use some motivation to pay them off. However, if one of your debts has a much higher interest rate than the others, the debt avalanche would likely save you the most money.
Whatever strategy you choose, make sure to set up automatic payments on your cards so you don’t miss one, which adds late charges to what you owe and hurts your credit score.
4. Pay More than Your Minimum Payment
The average credit card interest rate in July 2023 is 22.46% for new accounts and 20.68% for existing accounts. If you’re only making the minimum payment on your credit cards, it’s incredibly difficult to pay off your debt if you owe a lot. If you have $30,000 in debt and have 20% interest rate, your minimum payment (interest plus 1% of balance) is $800 a month. It would take 455 months – almost 38 years – to pay it off and you’ll pay $49,389.90 in interest along the way.
And that’s assuming you don’t add any more credit card debt along the way!
You probably don’t have all your debt on one card, so this is a worst-case scenario. But federal law requires your credit card statements to include how long it will take and how much it will cost to pay off a card only using minimum payments. Online credit card calculators will give you the same information. It takes a long time, and it’s expensive.
So, it’s vital to pay as much as your budget allows each month. The more you lower your principal, the less you’ll pay in interest.
5. Set Goals and Timeline for Repayment
You probably realize that paying down $30,000 in credit card debt won’t happen overnight. But that doesn’t mean you shouldn’t set a time goal to get it done. Without a goal, your odds of success decrease dramatically.
A timeline will keep you on track while helping you maintain your budget. Set realistic goals. If your goal is too high, you might get frustrated and quit. If your goal is too low, it will take longer than necessary, costing you money.
If planning the entire paydown overwhelms you, start smaller. Plan to pay down a certain amount of what you owe in a set time, such as six months or a year. After you accomplish that, make another plan for the rest of what you owe. Success breeds the confidence for you to complete your overall goal.
6. Consolidate Your Debt
High interest rates and dealing with multiple creditors are two reasons why paying off credit card debt is difficult. Fortunately, there are ways to get around those issues.
The first is a debt consolidation loan. This involves taking out a loan to pay off your credit cards (and, potentially, other debts). As a result, you have a single debt with a single monthly payment and interest rate. If you have a good credit score, there’s a good chance that interest rate will be far less than what you’re paying on your cards. You can do this through a variety of loans such as home equity loans, home equity lines of credit (HELOCs), personal loans and cash-out refinances.
There are potential pitfalls. Some of these loans require collateral, such as your home or car, and you could lose them if you don’t make payments. Also, closing costs could reduce or eliminate your savings.
Another option is a balance transfer credit card. Some credit cards offer low or even zero percent introductory rates for a set time period, typically 6-21 months. During that introductory period, every dollar you pay reduces what you owe because you aren’t being charged interest. One drawback is that you likely will have to pay a transfer fee of 3%-5% on your debt and customary interest charges (usually more than 20%), kick in when the introductory period ends.
7. Implement a Debt Management Plan
Another option is enrolling in adebt management plan administered by a nonprofit debt management company like InCharge Debt Solutions to pay off credit card debt. The nonprofit agencies have agreements with the major card companies to reduce the interest rate you pay to somewhere around 8%, so that your monthly payment is affordable. These programs take 3-5 years and it is easier to maintain a monthly budget because you know how much you’ll pay each month and for how long.
Such programs require financial discipline. When you’re enrolled in a debt management program, creditors require you toclose your credit cardsso as not to incur additional debt.
8. Make Adjustments and Seek Credit Counseling
Digging out of the financial hole of massive credit card debt is one thing. Changing the behavior that got you there is another. In either case, getting sound advice can be the key to success.
Talking to a credit counselor at a nonprofit agency like InCharge Debt Solutions can help you determine the right path to solidify your financial future.Credit counselingcan teach you about budgeting, straightening out your finances and determining if a debt management plan is right for you. Even better news: Counseling at agencies like InCharge is free.
