The average U.S. household has $15,270 in credit card debt, according to NerdWallet. That’s almost a third of the annual median household income in the U.S.
In addition, 76 percent of Americans are living paycheck to paycheck, according to a 2013 bankrate.com survey. This means if they have an employment disruption or a major expense, they’re going to start skipping monthly bill payments.
If you’ve got a pile of credit card debt, and are living paycheck to paycheck, you’re walking a tightrope. Thankfully, here are some simple steps that can help you dig out of debt.
Cut up (or freeze) the cards. The first thing you must do is stop relying on credit cards for purchases. At a minimum, you have to be able to cover all of your monthly expenses with the money in your checking account. To pay down your debt, the first step is to eliminate those cards.
The ice method is surprisingly easy. Fill a pan half full with water, freeze it, put your cards on top and fill the pan the rest of the way with water. Finally, freeze the pan again to make an ice cube with your cards in it.
Delete your card information from online stores. Many people use their credit cards in online stores where their card number is stored from a previous purchase. If that describes you, delete your information from those stores. If you’re paying for a recurring service, use a debit card issued from a major credit card service linked to your checking account.
Create a clear payment plan. Make a list of all your credit cards, then either order them by interest rate (highest first) or by balance (lowest first). Both plans have positives and negatives. The interest rate plan has the lowest total payoff, but the balance plan is psychologically easier to accomplish.
Once you’ve made a plan, strive to make at least a double payment each month to the top bill on the list, and keep making that same payment amount each and every month. When one card is paid off, don’t back down. Take whatever amount you were paying each month on the first card, and apply it to the next one.
Take advantage of balance transfers when it makes sense. If you have a high-interest card with a small enough balance that you’re confident you can pay it off in a few months, consider transferring it to another card that offers a zero-interest balance transfer. You’ll need to pay off the debt before the balance transfer expires, or else you’re often hit with a much higher interest rate. If you do it carefully, you can save hundreds on interest this way.
Give yourself an early boost. One of the best things you can do when you start paying down credit card debt is to give yourself a quick boost in the form of extra money applied to that first credit card balance.
Where do you get that extra money? Clean out your closet. Clean out your DVD collection. Go through any other collections you have. Evaluate each item and ask yourself whether you’re going to use this item in the next year or so. If the answer is no, sell it. Take all of the proceeds from those sales, and make one giant payment to your highest interest credit card. Ideally, you’ll pay it off in this way. That burst of success can motivate you to keep going.
Change some of your habits. Your daily habits and routines are the reason you got into this mess. Spend some time thinking about how you spend money each day, each week and each month. What routines can you change without affecting your quality of life too much? Perhaps, for example, you could eat out less often. Or, check books out of a public library rather than buying as many titles.
Trent Hamm is the founder of the personal finance website TheSimpleDollar.com, which provides consumers with resources and tools to make informed financial decisions.