2020 – there’s not much more to say. This year has brought us financial pressure that some of us have never seen in our adult lives. And it wasn’t just a volatile stock market – it’s the day to day, very real pressure of paying bills and making it from month to month. Now that we’ve lived through all these months of pandemic pressure, and we’re seeing new reasons for hope, you might be thinking of how to clean up some of the mess that 2020 has made. Credit card debt is a great place to start.
Pay your minimum payment on each of your credit cards carrying a balance.* Then, pay more (even if it is $5) to your highest interest rate card. Every little bit helps. The sooner you start, the more you save in interest expense. Don’t wait until the New Year to start working on this goal.
It is tempting to use debt consolidation products or services, or to even transfer a balance to a different card. While those things sometimes make sense temporarily, they are not the solution. Focus on actions you will take to truly pay down the balance you are carrying. How much will you pay extra each month? Which card balance (if you have multiple) will you focus on? Are there areas in your budget to cut back, so you have additional cash flow for paydown?
Write out your plan or work with a professional who can help optimize your plan. We often work with clients to determine ‘efficiency adds’ to their financial plan, or you can use a tool like BrightPlan’s debt reduction goal (available in your Plancorp Client Portal).
This is not as simple as it seems. If we didn’t already know, 2020 made sure to teach us that some things are out of our control, and deadlines are hard to hit.
Consider setting short term deadlines. Rather than, ‘I will pay off my credit card debt within the next 36 months’ think, ‘I will pay an additional $500 off my balance by the 1st of next month. I will continue to do this until I am credit card debt free. If all goes to plan, I will be done within 36 months. It is much easier to measure success with smaller ‘check points’ along the way. It is also easier to forgive yourself when a month goes awry, and you are unable to hit your goal. You simply pick yourself up and make up for it over the next few weeks.
You made a plan and set a deadline for yourself. Now, you need to stick to it. I like these three ‘hacks’ to making it easier to hit your goal:
The only way to hold yourself accountable to your goal is to track your progress. Finding a tracking system that works for you is key. I have worked with clients who found it helpful to get a calendar that they marked with payment dates and balance goals. I have also had clients who need ‘push notification’ reminders because everything they do was driven by their phone’s To Do List.
If you are a Plancorp client, we can help you track your goals and you can set it up in your Portal to track your progress and celebrate your wins. If you are not a Plancorp client but could use some guidance, do not hesitate to call/email us! We have tools we can point you towards and coach you along the way.
The goal is to pay off your credit card balance each month. If you (or your kids) are not doing so, let’s talk. It is one of the best ‘gifts’ you can give yourself: financial freedom.
*Credit card debt is the balance you are carrying on your card from month to month. If you pay off your entire balance each month, you do not have ‘credit card debt’ and are not charged interest.
Disclaimer: This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.