Credit card debt in America has reached $1.4 trillion dollars for 2024. According to the Washington State Standard that is a 5% increase since last year! So where does that leave us as consumers in America?
If you are reading this, chances are you are seeking ways to eliminate your credit card debt, and you are not alone. I have been in the same situation myself and struggled to keep up with minimum payments. The best way to tackle debt is to set up a strategy and look for options to help execute your plan.
This post will guide you how to eliminate your credit card debt using an aggressive approach.
1. Balance Sheet
The first thing you will want to do is calculate exactly how much you owe on your credit cards. You will want to know the interest rate on each card and any annual fees. Calculate how much your monthly payments are, even if they are just the minimums, make sure to add all of it up on a separate column from your total debt balance.
Once you have an accurate balance sheet you can analyze how much you owe and how much you will need to pay over from your minimums. If you find yourself not being able to make more payments from your minimums. Read the following steps.
TIP: Keeping a balance sheet for all of your expenses and liabilities is the first step for financial literacy. Learning where your money is going and how much cashflow you have at the end of the month is the key to financial freedom.
2. Negotiate
Most credit card companies are willing to negotiate your balances for a reduced pay off amount. You can negotiate the balance or even the interest rate to help you pay off your credit cards faster. Keep in mind this is time consuming and you may need to call multiple times and speak with different representatives to get the deal you want. It may not be easy but if it can save you hundreds or thousands of dollars in the end, it is worth it.
Setting up a payment plan to reduce your monthly payments is also an option with most credit card companies. The goal is to not take NO for an answer. Keep trying to negotiate until you have worked out a deal that helps you keep more cashflow in your pocket.
If you have an aggressive creditor like (Wells Fargo, Chase, American Express) you might need to use another approach if they don't budge on reducing the balance or set up a feasible payment plan.
TIP: If you mention you are going through a financial hardship (Divorce, Medical, Death, Loss of Job) your chances of getting a reduced balance or payment plan are a lot higher.
"Hello, my name is ______ I need to speak to someone about my current balances and what I can do to reduce the interest or pay off amount. I am currently going through a financial hardship and I am unable to keep making these payments at this rate. Please connect me with someone who can help me. Thank you"
3. Debt Consolidation
There are many consolidation plans disposable on the internet. Be vary wary on what you search on the internet, the last thing you want to do is find a consolidation loan that is a higher interest rate than you are currently paying on your credit cards. The thought of having everything bundle into one payment might sound enticing but be carful on what you sign up for.
Things to look for when you submit for a consolidation loan. What interest rate are they offering you? Do the monthly payments make sense? Having the same monthly payment or higher than what you are currently paying towards your credit cards defeats the purpose of "consolidation"
This option is for consumers who have healthy credit scores and debt to income ratios. You can have a 700 credit score but having a debt to income ratio of 36% or higher puts you at a high risk for most lenders or banks. Therefore they will offer higher interest rates.
Use the formula below to determine where you are with your debt to income ratio. This includes your gross monthly income divided by all of your monthly debt expense (mortgage, rent, car, student loans, credit card any other debt payments) and times that by 100.
TIP: DTI= Gross Monthly Income (÷) Total Monthly Debt Payments ×100
4. Debt Relief Plan
This option is great if your credit score has declined due to your credit card debt. If you find yourself with a high debt to income ratio and a low score this is a great option to eliminate credit card debt for a fraction of what it would cost you to pay it off on your own.
Again, be vary wary with companies offering to pay off your debt at 50% off. Do your research and make sure you read success stories. If you find a company and they have no success stories, move on.
This option will help manage your monthly payments and save you at least half of what you currently pay. These plans focus on eliminating any interest and negotiate the full balance owed.
Similar to negotiating on your own but now you have a company doing it for you. The new monthly payments are now used to pay off the principle balance with no interest and at a reduced amount.
If you have more than 5 credit cards, it would be a smarter use of your time to have a company with a good reputation negotiating on your behalf.
The risks with this option is that you will need to stop making payments directly to your credit cards. By doing this it goes to show that you are going through financial hardship and you are working with a company to make those payments for you.
Keep in mind missing payments will affect your credit report until they negotiate the balances down on your accounts. Companies take about 3-6 months before coming to an agreement on a reduced pay off amount.
This option is great if you don't plan on using your credit for the next 2-4 years.
TIP: Change your mindset on how you view money and credit. If there is an option to bring you more cashflow why not explore it? The fear of holding on to poor credit rather than save money has crippled many Americans. Remember credit can always be fixed-but financial freedom is harder to obtain and takes discipline and financial literacy.
5. Make More Money!
The easiest way to create more cash flow is to make more money. Now most consumers think they need to get a second job or a side hustle. Now there is nothing wrong with that! But what if you can make your money work for you rather than use your time to make money?
There are many ways and options you can explore to watch your money grow.
High Yield Savings Account- similar to a savings account but the % of making money is higher than having it sit in your normal checking or savings account. Read about it here and explore the different accounts available.
Stocks- Research, research! Read about the stock market. Learn about companies and what you can do to invest in them. Owning stocks increases your assets (stocks, bonds, HSA, Real Estate) rather than only having liabilities (car, mortgage, debt.)
These options have a high return but it isn't a get rich quick scheme . These options build over time, but in time you can have a good nest for emergencies, retirement or paying off your current debt.
TIP: Building financial wealth starts with knowing what your liabilities are and what are assets. To keep it simple liabilities are where your income is going. Assets are what bring you income to pay for your expenses.
Use these 5 steps to eliminate your credit card debt and build your financial wealth.
