Today is the day for Credit card debt Reduction

Jerevie Canlas, Ph.D., CFLE, 
Empowering Financial Wellness Program Coordinator

In all fairness, credit cards are very convenient and help individuals build credit - because there are things that are not easy to purchase in cash. However, it’s really tempting to overspend with a credit card. If not used cautiously, excessive credit card use can put you years behind in your financial goals. Imagine this: you are using credit cards to build credit so you can purchase your own home. When you miss a payment or are not able to pay your balance in full, you might not be able to build good credit, so you end up getting a less desirable interest rate on a mortgage loan. What’s worse, since you’re paying off debt, saving for a downpayment for that dream home might take longer. Just with this scenario, the biggest advantage of credit cards is credit building, and the biggest pitfall is overspending and debt - exactly the things that will ruin the credit you’re wanting to build.

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Here’s a more concrete example: If you owed $2000 in credit card debt at 20% interest and only paid a minimum payment of $40 a month, it would take you 9 years and 1 month to pay it off - and that’s assuming you’re not adding any more to your balance. Not only that, you would also end up paying $2336.10 in interest. Now I don’t want that for myself, or for you my dear friends. That amount of money could have gone to your own pocket - seed money for a savings account, emergency fund, or two round trip tickets to Paris.

Since today, March 21st, is National Credit Card Reduction Day - what better way to celebrate than to start shaving off that credit card debt. If you find yourself managing credit card debt, our team here at Utah Money Moms is challenging you to do one or ALL of these THREE things to start shaving off that debt. 

1. Go to PowerPay.org and create an account. PowerPay is a FREE debt elimination tool that will help you prioritize where your debt payments should go to minimize the length of time you’re paying off debt as well as save you money in interest? You might have heard of the avalanche method and the snowball method for paying off debt. The debt avalanche method involves making minimum payments on all debt, then using any remaining money to pay off the debt with the highest interest rate. On the other hand, the debt snowball method involves making minimum payments on all debt, then paying off the smallest debts first to get them out of the way before moving on to bigger ones. But which method do you use in your particular debt situation? PowerPay takes the guesswork out of your debt repayment plan! 
   
2. Review your spending plan, slash expenses where you can to free up money, then use that money to make extra payments on your debt. Remember the example earlier? By just paying an additional $10 a month toward your debt, you’ll be able to pay it off in 5 years and 7 months and save about $1000 in interest. Two less lattes a month won’t hurt, we promise! What if you doubled your minimum payment? Paying an additional $40 every month will save you about $1700 in interest and, compared to 9 long years, it will only take you 2 years and 9 months to pay it off completely. If you are used to eating out once every week, consider skipping one week and use that money towards paying off debt. This small sacrifice will help you pay off debt quicker. As for that $1700 in interest you saved, consider that a gift to yourself.
   
3. STOP. USING. THAT. CARD. We know, it's hard to go cold turkey. Remember when the character Rebecca Bloomwood (played by Isla Fisher) in the movie Confessions of a Shopaholic froze her credit card in the most literal sense of the word only to forcefully break the ice mold holding the card captive because she couldn’t resist a good Gucci sale? Yeah, that might work for a while but not in the long run. A better way would be to just carry cash for a while so you won’t be tempted to swipe the plastic. There’s something about paying with cash that makes spending more real - cash is gone, no more money left to spend. Leave the credit cards at home and make it as inconvenient as possible for you to access them. Another option would be to close them. Keep in mind that doing this will affect your credit history, which is 30% of your credit score. You might want to do this as a last resort. While closing a credit card will lower your credit score, this setback is temporary and is more beneficial than being constantly tempted to use your credit card and get deeper in debt.

What else have you done to curb your credit card spending? How were you able to pay 
off your credit card debt? However your progress looks like, don’t forget to reward yourself for achieving your financial goals. Go and celebrate your victories, no matter how small they may be! We’re here to support your journey towards becoming debt free.