Getting your first credit card is an exciting proposition. But getting into too much debt with her is too easy. For students who have a lot of expenses but little income, getting out of debt can be a challenge. Here are some steps that may help you.
Key points to remember
- Over 36% of students reported having credit card debt of $ 1,000 or more in a recent study.
- Getting out of credit card debt may take longer than getting started in the first place.
- Making the highest payment you can afford each month can help you reduce your debt over time.
- You may also be able to negotiate with your credit card issuer for a lower interest rate or other assistance.
Establish a personal repayment plan
Your credit card debt doesn’t have to stay in your post-graduate life. Although you have accumulated loads that now seem insurmountable, what you need now is a plan of action. By taking into account the current state of your finances and adjusting accordingly, you can start to reduce what you owe.
Take stock of your debt
No one likes to read their billing statements, especially if they’re for a loan, credit card, or some other form of debt. Unfortunately, you can’t just throw your statements aside. You will have to take stock of the damage before you can formulate a repayment plan.
To get started, write down the important numbers: your outstanding balance, the card’s annual percentage rate (APR), and your minimum monthly payment. These numbers tell you exactly how much you owe, how much you will be charged in additional interest if you leave an active balance on the card, and how much you have to pay each month to at least stay current. You can also write down the estimated repayment date, which shows you how long it would take to pay off the debt if you were only paying the monthly minimum, usually a very long time. If you have more than one credit card, do it for all of them.
Determine your monthly cash flow
As a student, you may not have a stable income, or little. This could mean that it will take months or years, rather than days or weeks, to pay off your debt. Don’t let that put you off.
To help keep you on track, budget for yourself. Consider where your money is going in a given month, such as gasoline, rent, groceries, or other necessities. Then, consider the things you do for fun. Ask yourself if there are any expenses you could do without in order to have more money to apply to your debts.
Ask your credit card issuer for help
Depending on your situation, you may be able to negotiate with your credit card issuer. You won’t be able to lower your balance, but you could eventually find a better interest rate or have your late fees waived. It’s not necessarily a slam dunk, but a 2014 study found that 90% of cardholders surveyed were able to be forgiven for their late fees, while 63% said they were able to reduce their late fees. ‘interest, simply by picking up explaining their situation. It never hurts to ask.
Consider a balance transfer card
It may seem counterintuitive to apply for another card to meet your debt, but credit cards with good balance transfer offers allow you to transfer your existing balance to a card with low interest or even 0% for a certain period of time. By doing this, you are eliminating some or all of the interest you would have incurred with the other card, allowing you to pay off the debt faster. Unfortunately, if you have serious debt issues, the new issuer may deny your request.
Ways to Reduce Your Credit Card Debt
Even as a student, you may have more options than you think to reduce your debt.
- Limit your spending. When creating your initial budget, you might have noticed some small costs here and there that you could live without. A media membership here, a gym membership you never use there, all of those costs add up. Start cutting back on your excess spending and applying that money to your monthly credit card payments.
- Find additional income. A part-time job, whether during the summer months or while studying, will produce additional income, at least part of which you may be able to use to pay off your debts.
- Pay more than the minimum. Paying your required minimum monthly payment will keep you in good standing with the credit card company, but it won’t do much to reduce your debt. Plan to pay at least a little more when you can each month, and a lot more when you can afford it.
- Always pay on time. If there’s one thing you should remember about a credit card, it’s that you should never miss a payment. This can wreak havoc on your credit score because late payments are a major factor in how your score is calculated.
- Target small sales first. If you have more than one credit card, a refund technique known as the snowball method might help. This involves paying off the card with the smallest balance first, while only making the minimum payment on the others. Once this card is redeemed, you move to the one with the lowest balance, and so on in the list. Some people find that this method also keeps them motivated, because paying off small debts gives them victories to celebrate.
- Or target the card with the highest interest rate. An alternative to the snowball method is Debt Avalanche, where you start with the card with the highest interest rate. Once that card is redeemed, you switch to the one with the next highest interest rate. This technique can save you a lot of interest if you have the discipline to stick to it.
- Be patient. Sometimes it may seem like you’re not making progress fast enough to reduce your debt. Keep in mind that even if you have accumulated your current debt quickly, paying it off can take some time.
Know that you are not alone
Whether your credit card balances total hundreds or thousands of dollars, keep in mind that your situation is far from unique. If you look at the recent cohort of college students and graduates, credit card debt also plays a major role in their lives.
A 2019 study of over 30,000 students found that 36% reported having $ 1,000 or more in credit card debt. Another study found that about 49% of Gen Z respondents and 51% of Millennials said they used up their credit cards at least once.
All of this to say that while your current situation may seem bad to you right now, you are not the only person looking at credit card debt. Most people will get out of the hole they’re in, and you can do it with the right plan and enough motivation, too.