Whatever it was, I’m glad you are now convinced – credit card debt is bad.
Credit card debt will easily destroy your plans for any kind of a sensible financial future. So, good for you. Let’s get rid of the credit card debt so you can get out of debt.
Get Out of Credit Card Debt: The 8 Steps
1. Remember that things will probably get worse before they get better.
Many credit card users float payments. This means you typically spend next month’s dollars by using the credit card today. Basically, your cash flow is upside down and backwards. You must stop this habit. The first month will be the hardest. In fact, when you first get rolling, it will seem like you are trying to fit two month’s worth of expenses into one billing cycle. Basically, you are. You will be paying this month’s expenses (in cash) and last month’s expenses (that you charged).
On the front end, you will feel like the work is not worth the reward. I encourage you to really work at this for the first couple of months because your gratification will be delayed.
Remember when the Israelites left Exodus? Things got worse before they got better. The Israelites, in fact, wanted to go back to Egypt. After just a few weeks, you will want to go back to the old way because it was easier. Please don’t. Do what is right, not what’s easy.
2. Get organized.
Typically, if you have credit card debt, it is because you are not naturally an organized person. That’s not bad, but you will need to organize your finances before conquering your debt mountain.
Here is exactly what you need to know:
- Which credit card accounts are active?
- How much do you own on each card?
- What is the interest rate?
- When is the next payment due?
- What is the minimum payment?
Here’s a free debt snowball spreadsheet to help you get organized.
3. Get motivated.
Only a small fraction of personal finances has anything to do with math (pun intended).
The larger factor is attitude and discipline. Do you have the attitude necessary to get out of debt?
You need to commit to become debt free. You need to be willing to sacrifice and willing to make changes.
Your greatest asset during this time will be your financial focus and motivation.
4. Don’t take on any more credit card debt.
If your bath water was running out of your tub because you didn’t have the plug in, would you turn up the water, or would you plug the tub? Most likely, you would put the plug in.
Your credit card payments are the leak in your personal finances. By not making any new purchases, you are actually starting to make progress in the right direction.
Three things you can do with your old credit cards:
- Destroy them: completely remove the temptation to charge on your credit card. Cancel your card.
- Freeze them: it’s going to take a few hours to defrost, so at least you won’t use it before you have a lot of time to think things over
- Hide them: Have a friend take the card and hide it somewhere safe.
5. Find money by making a budget.
The best place to find money is in your regular pay. If you do not keep a written budget, there is money to be found in your own paycheck. Here’s a step by step guide on how to make a budget. If you’re a first time budgeter, here is a sneak peak into our budgeting process.
If you cannot find money in your budget, then you probably need to increase your income. This means getting a second job. Here are a few good part time jobs.
6. Get current on credit cards.
Make the necessary payments to get and stay current.
Tread Water on the balance of all but one card
This is where financial focus is essential.
Be content not to make any progress on all but one of your balances. Then attack that balance like crazy.
7. Start paying off credit card debt.
So which card should you focus on paying off first?
There is a lot of debate on the topic. Here are three frequent methods. You decide which works best for you.
- Pay off the balance with the highest interest rate first. This approach makes the most mathematical sense, but we’ve already concluded that personal finance is about a lot more than math.
- Pay off the lowest balance first. As you pay off this small balance you have a psychological win. Then you take that money you were paying on the first balance and apply it to your next smallest balance. This method is frequently referred to as the debt snowball and is endorsed by Dave Ramsey.
- Pay off the debt you hate the most first. Perhaps there were circumstance around why you got a particular debt. You hate the fact you got the debt and hate even more how you got the debt. You will get the biggest emotional payoff if you get rid of this debt first.
I think there is a lot of value in the debt snowball, but to help you make the best decision, here are more ways to get out of debt.
8. Keep going.
There will be setbacks along the way. But, don’t let them discourage you. There are many people who are also getting out of credit card debt, and they are a testimony to both how difficult it is and how rewarding it is. The process might be years, but when it is finished, it will be worth the effort.
What did you do to get out of credit card debt? What suggestions do you have?
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{ 3 comments… read them below or add one }
It seems to make sense to pay off high interest cards first mathematically speaking. But like Dave Ramsey says, if you were using math you would not be in this mess in the first place.
Dave teaches to pay off the debt lowest balance to highest. Ignore interest. This gives you early successes to help keep you motivated.
I suppose you could do the higher interest rate first, but I chose to do it Dave’s way personally.
Arthur,
Thanks for your comment. The whole math vs. motivation question is an interesting one. I think it does depend on your personality. So many people have sucessfully used the debt snowball so I guess I tend to favor it a little bit.
Getting rid of credit card debt should be the number one goal for everyone. Paying the minimum will never help you pay it off, more than minimum is the only way to get out of debt.
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