How I Paid Off Over $12k of Credit Card Debt In Under a Year
The complete step-by-step guide to how I paid off my debt and how you can too.
My credit card debt story is a pretty common one. I didn’t grow up with much financial literacy. When I got to college, I opened up the first credit card that I could and pretty immediately maxed it out.
I tried to pay it down, but I’d pay part of it off and then use it up again over and over. I’d carry a balance and pay mostly interest.
Over the years that followed, I continued to open new cards and spend until I hit my limits. Until one day I had racked up over $12,000 of credit card debt. My greatest blessing in this was probably that my credit card companies hadn’t given me higher limits or I surely would have risen to the challenge.
After turning 29, I knew I needed to take serious steps to improve my credit and pay down my debt.
I was so angry at myself and ashamed of the debt I had accumulated over the years. For a long time, I didn’t tell people how much debt I was really in. It felt massive and crushing and I didn’t really know what to do about it.
So I researched. I planned. I paid off my credit card debt. Now let’s look at the steps I took and how you can take them too.
Step 1: Figure Out Your Why
Why do you want to pay off your credit card debt?
What would it mean for you to live credit card debt free?
Why is it important to you to pay off your credit card debt?
For me, paying off my credit card debt means freeing up hundreds of dollars a month to put towards other goals. It means that if I wound up being unemployed again, I wouldn’t have that commitment hanging over my head.
Paying off my credit card debt means not pouring money into a hole for the credit card companies to enjoy. It means less stress and fewer obligations. It means that I have more freedom to pursue the things I love.
It’s important to understand your why and have it mean something deep to you because this is what’s going to get you through it. Sure the first month or two you may have some quick wins and be excited about your progress. But I guarantee you that sooner or later you will run out of steam. You will hate how much money is going to pay off your credit cards. You’ll hate how much less you have to live your life.
But you are taking care of your future self and you will need to remember why you are doing this.
Step 2: Look at the Big Picture
In order to know where you’re going, you have to see where you stand. Write down all of your current credit card information. The name of the card, the limit, the current balance, minimum payment amount, and interest rate.
Once you’ve got everything together, you can see how much credit card debt you actually have. It’s important to face this information because it’s easy to dig our heads in the sand. It’s easy to pretend that it doesn’t really exist or that it’s not as bad as it is. It may not be as bad as you think it is.
It is also helpful to look at your credit score to see how it is being affected by your debt. Try out Credit Sesame or Credit Karma as free options.
Step 3: Stop Using Your Credit Cards
I don’t care what you have to do to stop using them, but do it. You are much less likely to pay off your debt if you continue to add charges to your cards.
So cut them up, put them in a block of ice in your freezer, hide them from yourself. Remove all saved payment information for them from shopping websites and apps and just forget about using them for now.
I’m not saying you can never use credit cards again, but putting new charges on a card you’re trying to pay off is going to make it that much more difficult. You have to stop the behavior that’s causing the problem before you can treat the symptoms.
Step 4: How Much Can You Pay
Right now you need to determine how much you can afford to put towards paying down your debts. First you’ll need to add up your minimum payments, that is the absolute minimum you need to pay just to keep yourself afloat.
Look to your budget to determine how much else you can put toward your debt each month. If you want to push yourself a bit more, determine when to pay off your credit card debt.
For me, it helped that I knew it was important to me to pay off all my credit card debt by the time I was 30, so I had a deadline to work with.
If you’ve gone through your budget and there’s nothing left to spare, see where you can lower expenses or get a side hustle. If you get a side hustle to pay off debt, you don’t have to do it forever.
This is helping you unbury yourself from the burden of debt and once you’ve paid it off, you can quit your side hustle.
Step 6: Make A Plan
There are two primary methods that people use to pay off their debts — snowball and avalanche. Both methods first require you to pay the minimum payment on all but one debt. Whatever amount you’ve determined in the previous step to be added on top of your minimum payments will be applied to this final debt.
For instance, say you have four credit cards that break down as such:
In the snowball method, you start by putting your extra amount towards the card with the smallest amount. By paying off your smallest debt first, it will give you the momentum to keep going and knock down the number of cards you’re paying each month. Once you’ve paid off your smallest card, move on to the next smallest one, applying the full payment to it.
If you took the cards above, and added $100 per month onto your payments, you would start with Card 1 and pay $125 per month until it’s paid off. Then take that $125 per month and apply it to Card 4 for a total payment of $160 per month. When you got to Card 2, the payment would be $205. And by the time you got to Card 4, your total monthly payment would be $345.
With the avalanche method, you start by putting your extra amount towards the card with the highest interest rate. Depending on the balances and interest rates of your cards, this may take more time to pay off your first card which is why beginners don’t like it as much. While you do save money in interest payments over time, you don’t necessarily get the quick wins and payoffs of the snowball method.
In this scenario, you would pay off the cards as Card 3, followed by Card 1, Card 4, and finish with Card 2.
What did I do?
I used both methods. I knew that I needed some momentum and I had quite a number of cards to pay off. So I started with the snowball method to pay off my two smallest cards.
After I finished those, I switched to the avalanche method so I could take out my balances with the highest interest rates.
When I got to the avalanche side of things, I also took advantage of a balance transfer.
Step 6: Consider a Balance Transfer or Personal Loan Consolidation
After I paid off one of my smaller balances, I received an offer with a low interest balance transfer. My credit wasn’t in a place to take advantage of a 0% interest balance transfer offer. So I used this one to transfer a chunk of the balance from my highest interest card onto this one.
A balance transfer is pretty much exactly what it sounds like. You transfer part or all of your balance from one card onto a new or existing card with a lower interest rate.
There is usually a fee involved, 3% is pretty standard, but it can go up to 5%. These lower interest rates are typically a promotional rate that will end after a certain amount of time.
Make sure that you will be able to pay it off before the promotional rate expires.
I’ve heard horror stories of people who didn’t pay off the full balance before the promotional rate ended. Then they were charged with ALL of the interest they would have accumulated at the normal rate for the duration of the promotional period.
Personal Loan Consolidation
If you have a lot of debt or don’t feel like you’d be able to pay off a balance transfer during the promotional period, consolidating your credit card debt with a personal loan may be a good option.
A personal loan will be used to pay off all of your credit card debts. Then you’ll have only one monthly payment, preferably with a better interest rate, and for a fixed period. This way you will pay it off in a certain number of months.
Step 7: Put Your Savings to Better Use
If you are in a steady, permanent, full-time position, then consider using your personal savings to pay down your credit card debt.
I had a moment that clicked for me last year when I realized that I had a bunch of savings sitting in an account earning 2% interest, meanwhile I was struggling to pay down $12,000 of credit card debt that was costing 24% on average each month.
I don’t think you have to be a finance professional to realize that math don’t add up.
So I took the majority of my savings and put it towards my credit card debt.
If you’re a freelancer or are in a tenuous work situation, it may be better to keep your savings where they are, even if it’s not immediately financially advantageous. I would much rather you have some savings to fall back on instead of having to rely on the credit cards you’re already trying to pay off.
Step 8: Use Your Tax Refund
If you still get a tax refund, apply it to your credit card debt. The tax laws have changed significantly in the last couple years and tax refunds aren’t what they used to be.
When I got my refund in 2019, I took the full amount and paid off one of my credit cards. While it sucked to not spend any of that money on fun things, I knew that I was doing myself a favor by paying down my debt.
Step 9: Put it on Autopay
Autopay will be your saving grace with debt repayment. Every other time I’ve tried to pay down my debt, I have relied on my own willpower each month to stick to my debt payoff plan and every single time I failed.
I would get my paycheck and then decide that I’d rather spend the money and my lovely little plan would fall by the wayside.
But with autopay, you are making a commitment to pay down your debt first. It takes the decision out of having to make those payments each month and makes it easier to stick to your plan.
These are the simple, but effective steps that I used to pay off my $12k of credit card debt in under a year. What steps will you implement to pay off yours?