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Eliminating Credit Card Debt
Published: 02/21/2011 by Kevin Mulligan
Have things gotten tight in your family's budget? Did you or your spouse lose your job months ago and you've wracked up some credit card debt?
Unfortunately, you aren't alone. There's a very large group of people with incredibly high credit card debt. That debt can be crushing! You're paying a very high interest rate and those minimum monthly payments can really add up.
But if you've decided you've had enough with credit card debt please read on. Through diligent effort over many months and years you can eliminate your credit card debt once and for all.
Assess the Credit Card Debt Situation
Before you can truly get started on making a dent in your debt you have to know where you stand. That means it is time to log on to your online accounts or get your monthly statements out. With the new CARD Act of 2009 you should see visual changes to your statements. On the front page of your bill it should be clearly visible how much paying just minimum payments would cost you over the life of the debt as well as how long it would take to get out of debt.
While looking at your statements you need to find the following information: what the current principal balance is, what your interest rate is, and what your minimum payment is.
Compile all of this data for all of your credit cards. You can create a spreadsheet that will allow for easy sorting based on the size of the card balance or the interest rate.
Stop Spending on Credit Cards
After compiling your information you're ready to tackle your debt. But you have to do one last task before you can really start on the road to debt freedom: stop spending on credit cards. You must get on a budget, and you must spend less than you earn. It is financially impossible to get out of debt if you're spending more than you earn – you will continually be adding to your debt burden. You can't get out of the hole if you keep on digging.
Choose a Credit Card Repayment Strategy
There are two popular methods to repaying credit card debt: paying off the lowest balance credit card first and paying off the highest interest rate card first.
The two methods are based on two schools of thought in regards to debt. By paying off the lowest balance first you eliminate that monthly minimum payment (which can be applied to the next credit card's balance) and you see relatively quick success. This builds mental momentum and encourages you to continue until you are debt free.
The second school of thought is based on math alone. By paying off the highest interest rate card first, then paying the second highest interest rate card off second, and so on, you mathematically spend the least amount of money possible to get out of debt.
Stick to Your Credit Card Payoff Financial Plan
Once you've selected your strategy to pay off your credit card debt all you have to do is stick to the plan. This is more difficult than it sounds. Motivation can be a problem and life has a way of throwing emergencies at you at the wrong time.
Persevere. Get through the problems, hold tight to your budget, and start paying off your debts. If possible pick up extra work or a side job to increase your available income to throw at your debts. Imagine how it will feel to cut up the first card you pay off! Then think of how the minimum payment you used to pay on that card can be used to speed up the payment on the next card. You'll build momentum naturally, and before you know it all your credit cards will be cut up and thrown in the trash.
