THE BROKEN WALLET

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How to pay off credit card debt…when you’re short on cash?

Too much credit card debt can cause emotional stress, physical stress, and it might strain your relationship. In addition, this financial burden can lower your credit score and make it harder to achieve other goals – such as buying a house or saving for retirement. 

Getting rid of credit card debt is easier when you have disposable cash. But what if you’re short on cash? How do you pay off debt in this situation?!? Here’s a look at 8 ways to pay off credit card debt when you’re short on cash.

1. Set a realistic budget

Forgetting to budget is the #1 mistake some people make when paying off debt. Budgets aren’t only helpful when saving money – they’re also helpful when creating a debt elimination strategy. They can track and organize your money, revealing how much you’re currently spending on needs and wants. 

Spending too much on “wants” might explain why you don’t have enough cash to pay down debt. Plus, without a budget you won’t know how much to allocate to debt repayment. 

A popular spending plan is the 50/30/20 budget. This involves dividing your net income (or take-home pay) into three categories: 50% for needs, 30% for wants, and 20% for savings and debt repayment. 

Related: How to Create a Budget That Makes Sense for You (video)

Needs include:

• housing costs
• basic utilities
• minimum debt payments
• childcare
• food
• insurance
• any other expense that isn’t a choice

On the other hand, wants include:

• eating out
• entertainment
• hobbies
• subscriptions
• etc.

I like this budget plan because if you’re able to keep your needs and wants within these percentages, you’ll always have money for savings and debt repayment. Of course, this budget plan isn’t realistic for everyone. For you, a more realistic approach might be 70/20/10 or 80/10/10. 

2. Start small (baby steps)

An effective way to pay off credit card debt includes doubling (or tripling) your minimum, and then gradually increasing these payments. 

Paying more than your minimum slowly chips away at your principal. This can also improve your credit utilization ratio and raise your credit score.  

3. Use windfalls to pay down balances

Rather than waste extra money buying stuff that you don’t need…use extra funds to pay down your credit card balances. 

A tax return, gift money, or bonus is a great opportunity to get back on track financially.

4. Negotiate credit card interest rates

Did you know that credit card rates are negotiable?!? If you have a good payment history with your creditor, the bank might lower your interest rate – but you have to ask.

You’ll pay less interest, and more of your monthly payment will go toward reducing the principal balance. Here’s a script from Bankrate.com:

Hello, My name is __________, and I’ve been a customer for (number) years. I feel I’ve been a good customer over the years, and I’d like to keep doing business with you, but my APR seems a little high. I’d like to talk to someone about that. Is this something you have the authority to change?”

5. Make bi-weekly payments

Some credit card issuers compound interest daily. Therefore, increasing the frequency of payments can reduce how much you owe in interest. 

6. Stop using credit cards

To be clear, there’s nothing wrong with using a credit card. I recently read that about 1 in 10 Americans still feel that “credit cards are evil.” However, credit is only dangerous when you don’t use it responsibly.

Some people, unfortunately, can’t use them responsibly. This includes only charging what they can afford and paying off their balances in full each month. If this sounds like you…avoid credit cards at all costs. They might give you a false sense of available money. This can lead to debt and loss of financial security. 

To protect yourself, freeze or cut your credit card and use cash.

7. Get a side hustle or part-time job

If you don’t have enough money to get out of debt, consider getting a part-time job, a side hustle, or asking your employer for a raise or overtime. But don’t waste the money. Use the extra money to get out of debt. 

Related: Five Reasons Why You Need a Side Hustle (video)

8. Cut expenses

This might seem like a no-brainer, but it has to be said. Debt isn’t going to disappear on its own. And sometimes, we have to make sacrifices to pay down credit card balances. If you can’t bring in additional income, you’ll need to trim the fat.

Understandably, this is easier said than done. But even if you only save $25 a week, you can reduce your debt by over $1,000 a year.

Here are a few practical ways to save money:

• cancel cable
• cancel a few subscription services
• use cash back apps like Ibotta (as a bonus: use code “renmwpo” at registration and Ibotta will give you $10 when you submit your first receipt)
• meal plan and shop with a list
• find free entertainment
• use the library (you’ll find many freebies)
• reduce your housing costs, if possible (move back home, refinance and get a lower rate, get a roommate, move to a cheaper city, etc.)

Keep track of your monthly savings, and then use this money to make extra credit card payments.

Related: 22 Tiny Money Habits to Start in 2022 (save money without even trying)