Paying off credit card debts can feel doable when you follow the simple steps listed below.
Have you ever tried paying off a simple debt on your credit card? Getting rid of that unwanted guest can take longer than expected, and even a small overdraft can take years to repay.
Showing that balance out the front door is possible. A few simple steps can allow you to enjoy the freedom of getting that unwanted guest out of your life.
Avoiding the minimum payment trap
Credit card statements have a section entitled “minimum payment”. It’s low, making borrowing on credit seem a bit too easy. But the money you don’t repay right away starts growing rapidly with high interest rates. That’s why even small credit card loans can take years to repay.
Gavi and Bracha Fisher* spent an extra £2000 on their credit card one month to buy plane tickets for the whole family to visit Bracha’s elderly parents. Their card has a 19% interest rate. If they only pay the minimum repayment (it’ll be 3% to start, and decrease as the amount lessens), it’ll take them 17 years to repay the debt! And, they’ll have paid £1,900 more than they took. That’s almost double the amount.
The magic of consistently paying more
What if Gavi and Brocha decided that, in addition to the minimum payment, they would add an extra £10 each month? Sounds simple enough, but look at the drastic difference. Instead of 17 years, they’ll have their debt paid off in only 7 years and save almost £1000 in interest!
What if, with careful budgeting, they tried to put aside a bit more? If they manage to put aside £70 each month toward the repayment of the debt, they’ll be overjoyed to repay their debt in just over 3 years with only £650 in interest.
Even putting aside just a bit extra every month can make a huge difference, as long as the amount is fixed. The most important trick is consistency, no matter how much you’re able to pay.
Leaving it flexible means you can make last-minute purchases and trick yourself into thinking you can afford it. Don’t let “I’ll pay the minimum for just this one month” become your monthly habit.
Breezing past your mini-goals
Try breaking up large debts into smaller chunks. That’ll give you mini-goals to celebrate throughout your journey that’ll keep you going strong.
The £2000 debt loomed in front of Gavi and Bracha until they created mini goals. £1500, £1000, or so on, each milestone became a chance to celebrate. Whether it was a long walk in a nearby park, an extra dessert for Shabbos, or some book time while forgetting about the ever-growing laundry pile, each goal caused them to appreciate how far they’d come and motivate them to keep going.
Cut the card and consider bank transfers
Putting in effort to pay off your overdraft while still using the card is like fixing a broken pipe while it’s still leaking. The first step for any successful repayment plan is to turn your credit card off. Consider using a debit card or a separate card that you always pay in full so you’ll be able to make real progress.
Also, cautiously consider transferring your debt to an account with a better interest rate. Many banks offer tantalizing 0% interest transfer deals. These tempting offers can easily cause you to drop your guard, but look out for the catch. Firstly, keep in mind that there is generally a cost to transfer. Also, that 0% magic only lasts for a year or two. Don’t let the clock run out before your balance is zero, or you’ll be hit with even higher interest rates than before.
Keep in mind that credit card points for air miles and hotel rewards sound great, but if you’re paying interest on your purchases, it may have been cheaper to book the room or flight on a debit card. Otherwise, the interest wipes out the gains.
Use your credit cards wisely
High-interest credit cards should only be used with a very clear repayment plan. Otherwise, the accrued interest can be challenging to pay back. When faced with an overdraft, create smart repayment strategies that help you feel confident and calm about your financial decisions. Remember that every thoughtful step brings you closer to financial peace of mind.
