Fighting back against credit cards: You interested?

The following is a contributed post.

If only it was as easy to escape credit card debt as it was to get into that mess in the first place. Unfortunately, though, this is just one of the cruel twists that life loves to throw at us, and we say cruel because there is no formal education that focuses on personal finance; there is no formal education that helps us better manage our money. But that is a rant for another time. The point is credit card debt is the worst kind of debt going. Why? Well, the simple answer is interest rates. However, there is a silver lining because, no matter how dark your cloud is, escaping credit card debt can be done. It just requires a plan of action, a lot of discipline, and a lot of determination. But all of that will be worth it in the end.

Know How Much You Can Repay

Before we delve into the two most celebrated debt-crushing strategies, however, it is absolutely pivotal that you know exactly how much you can afford to pay off each month. Before you start deciding on which credit card or debt to pay off first, you need to figure out what is realistic and that starts with a budget and, if you are really serious, a debt consolidation loan calculator. So, first things first, start by adding up all of your monthly income. All of it. Then move onto your expenses – rent, mortgage, utility bills, grocery costs, transport and, yes, the minimum payments on all of your credit card loans.

Once you have done this, subtract this figure from your income. This will tell you what you have left over. This is what you can use to start paying off your debts quicker than you have been. Of course, how you do that is the real secret, which means it’s time for us to delve into the two strategies that have the ability to give you financial freedom.

The Snowball Method

Apart from the urgent need for you to stop borrowing, one of the best strategies you can hope to use is the snowball method. It may not be as money efficient as the other option we are going to discuss with you, but what this approach does give you is a sense of direction, motivation and the ability to pay debts down fast. How it works is like this: you continue paying the minimum on all of your debts, except for the one with the lowest balance, which is where you focus any extra funds. By doing this, you are going to quickly reduce the amount of different debts you have accumulated, thus giving you an immediate sense of gratification as you write off another and pluck up the confidence to take on the next in line. Basically, what the snowball does best is give you some back-to-back quick-wins.

The Avalanche Approach

This is basically the exact opposite of the snowball method in the sense that you focus on the debts with the highest interest rate first. In Layman’s terms, this means you will be paying your debts off in the most money-efficient way possible. Sure, you may not get the same warm and fuzzy feeling as quickly, but you will be saving you healthy dollop on the interest front. The other great thing about this route is that you will probably end up paying off the credit card with the biggest balance first too, which means you’ll be flooring two birds with one stone.