Five Ways to Break the Credit Card Debt Cycle

Achieving Specific Financial Goals Requires Dedicated Steps

It all starts with one credit card, one purchase, and one moment of using the credit card because there is not enough available cash on the debit card. Life happens, I get it. Sometimes though when things get out of hand, it is necessary to take steps so that the one credit card does not become a house of credit cards that is no longer manageable.

People use to ask me when I would see them, “How is life treating you?”. I would respond my usual way, which was in some positive manner stating life is treating me well. It was not until a few years ago I realized that question in itself is reactionary. Shouldn’t we be asking ourselves and others, “How are you treating life?”. Although there are most definitely factors we cannot control in our lives, we always have a choice with how we act and behave to those many challenges, including our finances. These five areas can begin to aluminate a path towards being proactive, and not reactive to the world of personal finance.

Make a list of your debts, including the interest rates and minimum payments

While it may not be the most glamorous task, taking stock of your debts can be an important step in managing your finances. Start by making a list of all the debts you currently have, including credit cards, car loans, student loans, and any other outstanding payments that you might have. It is important when you do this that you make note of the interest rate on each debt, as well as the minimum payment required. This information can serve as a starting point for creating a budget and determining how to prioritize your payments. To streamline the process and ensure regular payments, consider setting up automatic monthly transfers for each debt. As life gets busy and you become occupied with pressing tasks, this will ensure that your debts are being tackled simultaneously. By taking control of your debt and actively working towards paying it off, you’ll be setting yourself up for long-term financial success instead of having your credit card(s) work against you.

Create a budget or savings plan and make sure to include savings in it

The most overwhelming task for anyone, whether it be beginning to workout, start a business, or tackle debt, is figuring out the first step, as it is always the most challenging. First, it’s important to think about emergency funds. It’s recommended to save approximately three to nine months’ worth of living expenses in case of a financial emergency. If your credit card debts are over $5,000 and incurring significant interest though, it might make sense to focus on the debt before the savings account.

Next, consider a “snowball” approach, where you focus on paying off small debts first and then gradually build up larger ones. This is also why noting which debts are accruing the most interest is vital to paying off debts the quickest. You probably know me enough by now and how I am always pushing to put money into a high interest savings account. Don’t forget about this step as they typically have higher interest rates than traditional banks and make it easy for automatic contributions. So, take the first step towards financial stability by creating a budget, setting aside some funds for savings, and creating a debt plan! It may seem daunting at first, but consistently sticking to your plan will pay off in the long run.

Find creative ways to earn extra money to put towards your debt

If you are seriously trying to eliminate as much debt as quickly as possible, it is important to consider the gig economy and the numerous opportunities that the market provides. Consider picking up a side hustle, whether it’s freelancing, starting a small business, or offering your services through the online gig market. Look for ways to cut expenses in your daily life, such as cooking at home instead of going out and practicing delayed gratification by waiting for sales rather than buying something as soon as you want it. These changes may seem small on their own, but they can add up over time and put a significant dent in your debt. Get creative and brainstorm new ways to bring home some extra income — with enough dedication and effort, you will be well on your way to investing and not only eliminating debts.

Stay motivated by setting small goals and celebrating when you reach them

Achieving our goals can often feel daunting, leading us to become overwhelmed and eventually give up. One way to stay motivated is by breaking them down into smaller milestones. Instead of setting one big goal for the year, try setting monthly goals or even weekly milestones. This not only gives you a regular sense of accomplishment, but it also helps keep your overall goal in sight. You should also consider establishing dollar amounts for each milestone as a financial incentive. For example, saving $500 in a month or reaching a certain amount in your retirement account can be milestones that feels tangible and attainable.

Celebrate each success, no matter how small they may seem, and use those milestones to keep pushing towards your ultimate goal. With this strategy, you can tackle those big ambitions one step at a time while keeping your motivation high. How many times have you started a work day with lofty goals but had no way of gauging your success? Our finances are absolutely no different. It is important to document the progress.

“There is only one way to eat an elephant: a bite at a time.” — Desmond Tutu

Get advice from a financial planning service

When it comes to managing your finances, it can be easy to feel overwhelmed or unsure of where to start. That is where credit counseling and financial planning advisors come in. These professionals can help guide you towards making wise financial choices and creating long-term plans for building wealth. With the rise of tech-driven options like Charles Schwab and Edward Jones’ robo-advisors, it is easier than ever to get personalized financial advice almost immediately. I am always an advocate for meeting with financial advisors in person though, so please do not hesitate to seek out an advisor. If you were sick, would you only go on WebMD to prescribe medicine and diagnose yourself? The same applies for our finances.

*This is not financial advice. For educational purposes only.