As we reflect this month on freedom and independence, we can use the opportunity to reflect on things in our life that are keeping us from truly living our most fulfilled life. Credit card debt can be a huge barrier to financial freedom, especially when we feel those interest rates creeping up and feel stuck in the cycle of minimum payments. Today, let’s explore four steps to stop the cycle and declare independence from credit card debt.
1. Know What You Owe
Knowledge is power, right? So the first thing we need to do is to gain a full understanding of our financial situation. Unfortunately, it’s human nature to want to avoid the things that make us anxious. It’s that voice in the back of your head that says, “let’s not open that bill right now.” If we truly want to be free from the burden of debt, it’s time to snapback at that voice. Follow this three step plan to do a financial deep dive.
- Write down (or use a spreadsheet if you prefer) all your debt balances and interest rates.
- Add up the total balances.
- Highlight those with the highest interest rates & circle those with the lowest balances.
This will give you a good idea of where you stand and we’ll use this information later when we identify options.
2. Track Your Spending
In order to know what debt repayment options are viable for you, you have to understand your spending habits. It’s best to track for a full month. If you do all your spending on cards, you can review your statements and use our handy budget worksheet. If you use cash regularly, try our fritter finder and budget worksheet. As you track, start to look for patterns. Do you spend when you are upset? Does that trip to Target get out of hand? What are the areas where you are overspending? Start asking questions and identifying areas where you can make some cuts.
3. Assess Your Options for Generating Extra Income
When thinking about declaring independence from credit card debt, we have two primary drivers. First, spending and second, income. If you can find ways to generate extra income, you can use that to pay down debt quicker. With the gig economy in full swing, there are more options than ever before to make some money on the side. Ask yourself, what could work for me? Do you have an extra bedroom you could Airbnb? Do you have the space for a part-time job? What skills do you have that you could share with your neighbors (landscaping, odd jobs, etc)?
4. Identify Your Options
Now, back to that quote about knowledge. Let’s expand on that.
“Knowledge isn’t power until it is applied” -Dale Carnegie
Once, we have all the information we need, it’s time to determine what debt repayment options can work and get started! Common self-directed options include the debt snowball (pay off lowest balance cards first) or debt avalanche (pay off highest interest cards first). If you want some support in your journey, a Debt Management Plan from an accredited non-profit will provide lower interest rates, reduced/waived fees, and the support of a financial specialist throughout the process. A financial specialist can assess this program for you and give you more information on other debt repayment options.
These four steps can be the start of financial freedom. If at any point the process becomes overwhelming, Apprisen has financial coaches who can help. Be sure, the process is worth the feeling of independence and hope you find on the other end of it.