7 Steps for Paying off Credit Card Debt
And staying out of it for good!
Credit card debt sucks and is at an all-time high! I was in credit card debt, back in my 20’s, close to $15K! I understand the frustration that credit card debt may cause, especially if you are using your credit card for necessities.
But that wasn’t me. I had a shopping problem for shoes, clothes, and shit I didn’t need. I did not need 30 different colored bras from Victoria’s Secret but I digress…
When I was in credit debt, I had many sleepless nights stressing about making my credit card payments and how the interest charges were ridiculous. I thought I would never get out of debt! I got to the point where I stopped opening my credit card statements and would just make the minimum payment because it would make me cringe.
But the bills kept showing up every month and I finally got sick of feeling this way about my credit cards! I went cold turkey with spending on them. I put post-it notes on my credit cards that I didn’t want to use anymore that said “NO!”.
I stopped spending on my credit cards unless I had the cash for it. And guess what happened? I’d just overdraw my checking account…There wasn’t enough overdraft protection in the world that could protect me from my spending habits! I needed a reality check for sure, which is step one in my process.
It took a couple of years after getting my spending habits in check to pay off my debt but my balances eventually got paid off! It was freeing and I haven’t gone back into credit card debt since getting out of it. If I use my credit card, which I do, I pay it off when the bill is due.
Below is what you can do to get out of credit card debt and stay out of it.
1. Do an honest review of your income and expenses
Start categorizing your expenses through your bank or through a budgeting app so you know where your money is going. Once you allocate your income and expenses, you will know how much extra cash you have to pay toward your credit card debt.
Some of you may have laughed and thought “but I don’t have any extra cash, which is why I use my credit cards!” TRUST ME. Once you categorize your spending, you will find some unnecessary expenses that you truly don’t need, like the gym membership you don’t use or the tv subscriptions you forgot about. If you don’t use it, cancel it.
If there is an expense you forgot about and haven’t used in the last 30 days, cancel it. Don’t kid yourself by thinking that you will use it again now that you remembered.
Be honest with your spending. You want to be in control of your money and not have your money be in control of you.
2. Stop spending on your credit cards
And don’t just say “ok, I won’t use them anymore”. Make your credit cards unusable so you can’t use them. It’s like throwing an abundance of salt on your meal halfway through so you stop eating because you eat too much.
Cut up your credit cards, use the lock feature on your credit cards so they can’t be used, remove your credit cards from your wallet and have your significant other, a friend, or a family member hide them from you, or put your credit cards in a bowl of water and put the bowl of water into the freezer!
You know your level of discipline so choose wisely in this step.
3. List your credit card debts
Bust out that Excel spreadsheet or a pen and paper to list your debts and make a table. For each debt, you want to note the interest rate, the current balance at the time, and the minimum payment due. If you want to do a little extra, add columns for the monthly payment you will be making, and the number of months it will take to pay it off.
Don’t be scared of a little math… you got this!!
4. Decide what credit card debt to pay off first
Now that you have your list of credit cards, it’s time to decide what to pay first. There’s the avalanche method and the snowball method.
With the avalanche method, you pay less interest by the time you’re done paying your credit cards off. With the snowball method, you build momentum to pay your credit cards off faster.
If you choose the avalanche method to pay less interest, you would sort your debts from the highest interest rate to the lowest interest rate. The credit card with the highest interest rate would be the one you start paying off first, then you work your way down the list.
If you want to start building momentum quickly so you can cross the debts off your list faster, sort your debts from the lowest balance to the highest balance. The credit card with the lowest balance would be the one you start paying off first, then you work your way down the list.
For the other credit cards on the list, you will only be paying the minimum payment while you tackle the first one, no matter what method you choose.
But the key to the snowball method is once you pay off that first credit card, you then apply the payment amount to the next credit card on the list creating a “snowball” effect because you are adding that payment to the minimum payment to the next card waiting to be paid off. For example, once credit card #1 is paid off, you add that monthly payment to credit card #2’s minimum payment, and so forth. Keep the snowball growing until all debts are paid off!
This step is different for everyone because we all have different needs. Assess your situation and choose what is right for you!
I personally used the snowball method (thank you Dave Ramsey) because I wanted to accomplish paying off my credit cards ASAP. I needed to feel the gratification right away with paying off my credit cards. Getting a quick win by knocking out the smallest balance first gave me the momentum I needed to keep going!
5. Make a monthly budget
I’m not a fan of budgets but if you are trying to pay down debts, I do recommend using one. In particular, the zero-based budget.
Now that you have analyzed your spending and cut out the unnecessary expenses, create a monthly budget and allocate every income dollar you earn to an expense. If you have multiple credit cards, you want to pay the minimum payment on all of them except the one credit card you want to pay off first from step 4.
Once you allocate all your income to your expenses, the leftover amount you have should be added to the minimum payment of the credit card you want to pay off first. Your monthly budget should zero out, that way you know where every penny is going!
6. Build up an emergency fund
Make sure to add to your budget an emergency fund if you don’t have one. Shit happens and if you don’t have $500-$1500 saved for emergencies, you will end up using the credit card that you are trying to pay off.
Do yourself a favor and get your emergency fund established FIRST before throwing all your money at your credit cards. This is important to be set up first so you do not have to use your credit cards if an emergency pops up.
7. Take action
“Insight without action is worthless. Taking action is the only path to change” — Marie Forleo
Follow these steps to pay off your credit card debt and you will feel a sense of freedom! Cleaning up your expenses and paying off your debt will provide you with such peace of mind that you wouldn’t want to get back into credit card debt again!
I hope this article helps at least one person get their credit card debt under control and paid off. These tips have helped me, so I want to pay it forward by helping someone else!
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