For most of us, the Fourth of July is a time to relax with friends and family, enjoy a hot dog on the grill and take in a fireworks show after dark. What better way is there to celebrate 238 years of freedom from British rule?
Unfortunately, many Americans are suffering under a new kind of oppression: credit card debt. According to a NerdWallet analysis, the average U.S. household credit card debt stood at $15,191 as of April. This is a staggering figure, and for many people it represents a big obstacle to living a life with true freedom.
Luckily, there are steps you can take to liberate yourself from credit card debt this Independence Day.
1. Stop charging.
It might be difficult, but the very first step on the path to debt freedom is to stop using your credit card. If you don’t, the balance will just keep climbing. Put your card aside, and switch to using cash. Not only will you break the cycle of swiping your way into debt, you’ll also likely to spend less overall.
Keep in mind that while stashing your card in an out-of-reach place for the time being is a good idea, it’s probably not smart to cancel your card. This will increase your credit utilization ratio, which could hurt your credit score.
2. Revamp your budget.
Committing to paying off your credit cards is an important step, but you’ll have to find extra money to make it happen. The first way to free up some cash is to take a hard look at your monthly budget. Cutting unnecessary expenses such as cable, eating out, entertainment, unused gym memberships and the like is a great way to create room in your spending plan for extra debt payments.
Bonus tip: Once you’ve created a strict budget that allocates a lot of cash to paying off your cards, be sure to keep track of your spending so that you’re sticking to your budget. You can do this by using your bank’s online tool, creating a simple spreadsheet or whatever works for you.
3. Kiss minimums goodbye.
If you’ve only been paying minimums on your cards, it’s time to step up your game. Most credit card issuers only require a monthly minimum payment of 1 to 3 percent of your balance, plus interest and fees. If you stick to their repayment schedule, it could take years to pay off your card and you’ll likely rack up thousands of dollars in interest payments along the way.
If you can, double or triple your card’s minimum payments to eliminate your debt faster. But make it a priority to pay something beyond the minimum each month, even if it’s only $10.
4. Consider a balance transfer.
If you have good credit, one way to save money on finance charges is to transfer your balance to a card that offers a promotional 0 percent interest period. If you’re able to repay your balance before the 0 percent period runs out, you could save a hefty sum of money on interest.
However, there are a lot of things to think about before taking this step. For one, most credit cards charge a balance transfer fee of 3 percent. This means that if you’re dealing with $10,000 in credit card debt, you’ll have to pay $300 just to complete the balance transfer. Be sure to weigh this against the money you’ll save in interest to decide if a balance transfer is worthwhile for you.
Another consideration is how fast you can pay off your balance once you’ve transferred it to a 0 percent card. Most cards only give you the promotional 0 percent rate for six to 12 months. After that, you’ll have to start paying interest, so it’s important to be realistic about how quickly you think you can eliminate your debt.
Finally, evaluate your overall level of financial discipline. If you transfer your balance to a 0 percent card, then turn around and charge the original card back up, you’ll be in worse shape than when you started. If you don’t think you can resist the urge to keep spending, explore other options for reducing your interest rate.
5. Explore ways to earn more.
After months of living on a lean budget and making hefty payments toward credit cards, many people get frustrated that progress still feels slow. This is a great time to explore your options for earning more money to eliminate your balance even faster. If working overtime at your usual gig isn’t an option, consider getting a part-time job or looking into ways to make money online. Every little bit helps!
The takeaway: The Fourth of July is a great time to think about declaring your independence from credit card debt. Use these tips to get started today!