If you accumulated a lot of balance on your credit cards, you are in dire need of a debt recovery strategy. These credit cards are notorious for having high-interest rates. That means you need to pay off your debts as soon as possible. Prolonging your payments by sticking to the minimum payment will cost you more on the interest amount.
You see the finance charge is usually added to the balance that’s carried over to the next month. This charge is calculated based on your interest rate and current balance. The higher these are, the more you have to pay towards the finance charge. Every time the balance is carried over, you’ll keep paying the finance charge. That’s what makes your credit card debt very expensive.
Don’t wait for it to get worse. Otherwise, you might join the increasing number of people who have entered a “financial hardship” status. This means they are already unable to pay off their debts and they need a reprieve from their payment obligations.
If you want to minimize the interest payment on your credit card balance, you have to try to pay off your balance as quickly as possible. The best way to do this is to come up with a credit card debt recovery strategy.
5 simple steps of a debt recovery strategy
If you want to be successful at something, you have to be prepared with a plan. Having a plan means studying all your options and choosing the right one that suits your current financial situation. This process allows you to find a debt recovery strategy that you can afford.
While there are a lot of options to pay off your credit card debts, they all follow these 5 simple steps.
Step 1: Accept your current financial problem
Do you know why some people fail to get out of debt? Because they haven’t really accepted their financial problem. Sure, they try to deal with their credit issues by paying off their balance. But they’re not really doing anything about why they are landing in the same debt pit time and again! Even if they pay it off, they are still accumulating debt.
So to really deal with your credit card debt, you have to identify and accept the real problem. What is causing you to use your credit cards excessively? If you can’t stop it, you’ll never completely pay off your balance. Because every time you pay, it won’t matter. You’re adding to it anyway.
Make sure you deal with this first. After identifying it, you have to accept the fact that you need to change the habit that’s fueling it.
Step 2: Take account of your finances
The next step to make your debt recovery strategy effective is to take a look at your finances. Your goal is to know how much you can afford to pay towards your debts. This is an important part of your strategy. It will help you identify the type of solution that you can choose. Obviously, you want the repayment plan to be affordable.
For instance, if your income is very limited and you can’t pay off your debts, you need a debt solution that will reduce your monthly payments. It’ll be easier for you to meet the monthly payments that way. If it’s affordable, it won’t be too stressful for you to complete your debt recovery strategy.
Step 3: Outline your objective
It also helps to understand why you are doing this. It will motivate you to completely pay off your debt.
Do you want to complete the debt payments so you can save on your monthly expenses? Or maybe you want to get rid of the stress that comes with having a lot of debts?
There are also people who are driven to get out of debt because they have financial goals. Like they want to buy their own house in the near future. Having a lot of debts will make it harder for them to get the best terms in their interest rates.
Some people just want to be free from the burden of having credit obligations.
What’s important is to know why you want to do this. Because the debt relief journey is not that easy. You’ll face a lot of temptations. You must find a way to overcome these so you can successfully implement your debt recovery strategy.
Step 4: Create a repayment plan
The fourth step is to create a repayment plan. There are a lot of debt relief options that you can choose from. When you reach this step, you already have an idea of your debt situation. You should also know how much you can afford to pay. Now it’s time for you to figure out the best debt relief program that will complement your financial situation.
Like if you want a reduction on your balance, opt for debt settlement. If you want to lower your monthly payments, you can choose a debt consolidation loan or debt management. For those who can afford to pay a lot each month, a balance transfer will help you get out of debt faster and save money too. Especially if you got a 0% interest rate on the balance transfer card.
The important thing is, you consider all your options so you can make informed decisions about your debt situation.
Step 5: Revise as needed
Finally, you have to keep checking your debt relief program to see if it still applies. You see, life constantly changes. Maybe the debt recovery strategy worked at first. But what if something happened to your income?
If you got a raise, you might want to pay more towards your debts so you can get out of debt faster. But if your expenses grew because of some improvements you implemented in your life, then you need a lower monthly payment. That means you might have to change your repayment plan.
Always check your repayment plan if it’s still applicable based on your current financial situation.
2 mindsets to make your debt recovery strategy successful
Admittedly, implementing your debt recovery strategy is tough. This is especially true if you keep on using your credit cards. According to reports, 37% of families rely on their credit cards to pay off their bills. They just deal with the aftermath.
This is a tough situation to be in. if you are forced to use debt to make ends meet, something has to change. Because it’s hard to get out of debt. The more you owe, the harder it is to solve. So make sure you don’t let to reach that point.
And once you’ve decided to solve your debt situation, you need to condition your mindset. Having the right mindset will make the debt recovery strategy easier.
First of all, you have to prioritize your expenses. Sometimes what happens is, you spend your money recklessly after getting your paycheck. But when the time comes for you to pay your bills, you no longer have money left. That’s a problem. You need to know the priority expenses. That way, you can put aside the money for that and it will not be in danger of being spent on something else.
The best way to do this is through your budget plan. Make sure it’s updated and aligned with your repayment plan.
The other mindset you need to have is about saving. You have to get better at saving. It doesn’t matter if it’s a small amount. You need to be cautious about how you use your money. If you don’t need to, don’t spend and just save the money. Anything that you save can be put aside to either help pay off your debts or grow your emergency fund. Both will help make your finances more secure.