Paying off Credit Card Debt
I am unofficially out of credit card debt. I just posted my last payment to my Bank of America credit card which once cleared will make me debt free of credit cards. In one and a half years I wiped out almost $5,ooo in credit card debt following some easy quidelines I set out for myself. I do still have some very large student loans to pay off but at least I don’t have to worry about the $50-$100 monthly payments I was making to my credit card companies. I had two and was able to pay them both off.
Most of my debt stemmed from college. After I was unable to work for the summer I was undergoing cancer treatment I used a credit card to make silly purchases like going to the bar, or a dinner here and there. Pretty soon I was making them all the time and using my cash to by other things, it was like having two sources of income. Most of my cards were new so they had some promotional deal like 0% interest for 15 months or something. Wonderful, free money and I don’t have to worry about the interest. Well I kept using them when I shouldn’t have and left college with about $4,500 in credit card debt.
That summer I ripped up my cards and began the long path of paying them off. I had 3 in all and implemented a few strategies to do just that. It took me a year and a half but I was able to pay off all of my CC debt and can proudly say I now have none.
1. Cut ‘em Up
First thing you have to do is simple, cut up your credit cards. Don’t even give yourself the chance to use them impulsively. Even though you could still potentially use them online with just the number at least you’ll have to get your statement and look it up to do that. This will give you time to think about what a mistake you are about to make.
2. Transfer to 0%
Next thing you need to do is transfer your balances to a 0% interest card. There are tons of them out there that offer introductory rates of 0% for the first year or so. Be sure to get one that doesn’t charge a transfer fee, if it does look for another one, they’re there. I made the mistake twice of transferring my credit card debt to one that charged a transfer fee. With the debt load I was carrying they charged me the maximum of $75. That’s usually more than one payment you’ll be making. Learn from me and don’t make that mistake.
3. Pay more than the Minimum
In order to pay off your debt in a reasonable time period you need to pay off more than the minimum. If you don’t think you can, look closer at your finances. Do you need to buy that extra case of beer, or pack of cigarettes, or 24 hour fitness membership you never use. Cut out a few things a month that aren’t necessities and you’ll be able to scrounge together $50-$100 rather than $15-$30 (usual minimum payments).
I was paying $100 a month on any credit cards I had. This meant living paycheck to paycheck but I needed to do it. I cut out some going out, (getting a job really helps this), and I began finding ways to squeeze a few extra dollars out of my paychecks every month.
4. Switch again
If you’re 0% introductory rate is running out don’t fall behind. The month before it runs out find another credit card with the same rate and no transfer fee. It usually takes a month to process the transfer, although they seemed to be speeding things up towards the end. Sure you’ll have more credit cards and people think this lowers your credit score but who cares. Isn’t the goal to get out of debt completely?
Just do it (thanks again Nike) and make your payments on time. That’s way more important.
5. Use your tax refund
If you’re in any type of significant credit card debt there’s a good chance you’ll get a refund at the end of the year, that is if you have been paying a little more than your share each month. Which most people do. Last year was my first year working at a career and it was my first large refund. All of it, and I mean all of it, state and federal went to my credit card debt. it was money that I didn’t know I had so why should I go waste it on a want. Unless you have a really, really, really good reason not to, you should be putting all of towards paying off your debt.
6. Pay a final lump
Try and make the last payment in one lump sum. I made two large final payments to my carriers and was able to wash out the debt completely. Being the holiday’s and having switched my student loans to interest only (not a great idea) I was able to save more every paycheck. Then when I had enough saved I didn’t go looking for “wants” to spend it on, I took the plunge and payed my debts off. Go for it, don’t mull it over and think what you could be spending the money on. You need to get out of debt.
These six steps are what helped me reduce and get out of credit card debt completely. Look them over and see how simple it can be. There’s no magic formula, no crazy Suze Orman telling you what to do. Just a guy who is in debt up to his eyeballs and managed to slice away over $4000 while still playing in paradise.
Aloha,
Debt Free Erik
(credit card debt at least)
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