If you are like most people, you probably have a credit card or two (or three, or four) sitting in your wallet or purse. In fact, the average Canadian carries a total credit card balance of over $3,200 at any given time. While this may not sound like a lot, credit card interest payments, fees, and penalties can eat at your monthly budget, making it difficult to save money or put it towards other more worthwhile expenditures.
If you’d like to free yourself—and your budget—of credit card debt, these tips will help you effectively put a credit card debt reduction plan in place:
Don’t incur more credit.
Paying down your credit card balances is a futile effort if you continue to incur debt. In order to see lasting benefits to your budget, you’ll need to stop charging things. Put your credit cards away in a safe place where they are not easily accessible and don’t stand as a temptation. A good rule of thumb is to reserve credit card use for emergencies (and no, the new designer handbag or latest gadget is not an emergency).
At the same time, resist the urge to open up new lines of credit just for the promotion, such as a percentage off your purchase. While you may intend to never use the card again, chances are you probably will.
Pay more than the minimum payment.
Minimum payments are not your friend. While they may seem like they’re saving you money each month, they’re actually doing just the opposite. Paying just the minimum payment on a credit card with a $700 balance, for example, will take you over six years to pay off, during which you will pay over $400 in interest. If you pay just $10 more a month on top of your minimum payment, you’ll pay your card off in less than three years and pay $188 in interest.
Put bonus money towards credit card debt.
Overtime or bonus pay, tax returns, birthday checks, and other unexpected forms of income that you don’t rely on to pay the bills are a great way to pay off your credit card debt even faster. If you find yourself the recipient of such a windfall, resist the temptation to splurge and put at least a portion of it towards your credit card debt reduction.
If your monthly budget is tight, chances are your credit card payments are eating up a good portion of your budget. You can break free of credit card debt by using these simple steps.
And you know what? Once those credit cards are finally paid off, you’ll have plenty of room in your newly revitalized budget to go buy that new purse or gadget with cash.
Won’t that feel great?
About the Author
David Smith is a licensed bankruptcy trustee and the Co-Founder of Personal Bankruptcy Canada. He has a love of all things personal finance but in his spare time can be found in his organic garden with his family learning about sustainable living.