American households are acquiring credit card debt at unprecedented levels. In 2019, the total credit card debt topped $1.088 trillion, exceeding the pre-recession record set in 2008. This puts pressure on consumer’s budgets as they try to alleviate an increasing level of credit card debt.
Consumers are grappling with greater anxiety, uncertainly, and pessimism around their financial outlook. A study by John Hancock indicated that 67 percent of workers are stressed over their finances and 72 percent worry about finances at work.
With financial stress permeating all aspects of life, more Americans are looking to alleviate this feeling by paying off their debt completely. Here are 7 proven steps to get rid of credit card debt for good.
1. Acknowledge Your Debt
Financial Planners agree that acknowledging credit card debt is the first step on the path to paying it off. To make true progress on paying off your credit card debt, you need to decide to become debt-free. Decision elicits action. Once you have acknowledged your credit card debt, it’s important to take an inventory of how much debt you carry. Most people completely underestimate their total level of total credit card debt.
2. Snowball Your Success
Debt repayment plans come in many forms. While there are a variety of debt payoff methods – avalanche, snowball, consolidation – researches have already determined which one will help you beat your credit card debt for good. Scholars at Northwestern University’s Kellogg School of Management have determined that consumers who tackle small debt balances first are more likely to eliminate their overall debt. By eliminating your smallest credit card balances first, you create momentum. This leads to higher confidence when tackling the larger balances in your credit card debt portfolio.
3. Build A Flash Budget
Now that you know which credit card to pay off first, you can start building a Flash Budget – or a quick tally of your monthly incomes minus your expenses. By analyzing your monthly cash flow, you can identify areas where you can reduce costs, both fixed and variable. Additionally, it will highlight where you can focus on increasing your income streams.
Rework your Flash Budget to meet your current debt repayment plan. A Flash Budget will serve as an unbiased performance evaluator, holding you accountable for your financial progress.
4. Negotiate with Your Creditors
If you want the best deal possible with your credit card company, then you need to let them know. The best way to do this is to negotiate with your creditors. Contact your credit card company and talk with a representative to explain your financial story. By having an honest conversation, you will humanize the process. Make tactical requests, like asking for a lower APR (Annual Percentage Rate) or a smaller minimum payment. These small changes will have big effects on your wallet. By being forcefully polite with your creditors, you can make a change. Credit card companies don’t want to lose your business; they are incentivized to work with you.
5. Track Your Progress
Goal-setting experts agree that the power of achieving regular small wins along the path to larger goals increases goal adherence. Tracking financial progress, with regularly scheduled check-in times, increases the chance of reaching overarching financial goals. Predefined measurement intervals will allow you to continually align daily activities with your financial priorities, reduce goal ambiguity and overall stress, and allow you to control your spending in a sequenced fashion. This is essential for getting rid of credit card debt, both large and small.
6. Automate the Process
According to research from the Principal Financial Group, 7 out of 10 Americans postpone making financial decisions. This lack of financial action can have a disastrous impact on long-term financial health. Indecision is a decision.
When it comes to paying off debt, it pays to automate the process. By making the choice to pay off your credit card debt, and then automating the process, your determination will gain resolve. Effective credit card debt repayment automation strategies involve regularly scheduled preset payments. This automation removes decision fatigue, thereby increasing the chance for overall financial well-being.
7. Celebrate Your Wins
Rewarding yourself is a vital part of creating new habits. The Strategy of Treats, popularized by author Gretchen Rubin, although it may sound elementary, is a remarkably powerful tool for habit reinforcement. This strategy advocates that you give yourself a treat every time you pay off a credit card. By doing this, your brain will associate the reward with credit card debt elimination – thereby providing positive reinforcement. The enjoyment evoked from this treat will energize you to seek the reward again, leading to a cycle that will allow you to finally beat your credit card debt for good.
Conor Richardson is the author of "Millennial Money Makeover" and founder of ConorRichardson360.com where he helps millennials tackle essential money matters. Follow Conor on Twitter or Facebook.