How to get rid of credit card debt

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Credit card debt is the easiest of all debts to build up because it's so easy to just get out the plastic. But it's also the hardest to get rid off because interest charges are so high.

In order to pay off debt, you need to use a strategy called Snowballing. There are essentially two versions of snowballing - Dave Ramsey's version which involves tackling the smallest debt first, and the more common version of snowballing which involves paying off the highest interest debt first.

I recommend paying off the highest interest rate debt first. Compound interest works against people who are in debt, and if you don't tackle the highest interest debt first, you will find that you end up having to pay more in total because you have let the interest run on the expensive debt.

Here's how to go about snowballing your debt:

List all your debts with the highest interest debt first, and noting the amount of the debt and the minimum payment required for each credit card. In our example, say you have three credit card debts, and have freed up $500 from your budget each month to allocate towards debt repayment. Here's what your original list will look like.

Interest Rate	Amount	Minimum payment
Card1	18.2%	$5200	$156
Card2	15%	$7300	$219
Card3	12%	$1200	$36

With snowballing you pay the minimum to the lower interest cards and pay as much as you can towards the highest interest card till it is paid off. Because we have $500 to put towards debt payment in our example, here's how the money will be allocated:

Interest Rate	Amount	Monthly payment
Card1	18.2%	$5200	$245
Card2	15%	$7300	$219
Card3	12%	$1200	$36

As you can see, the bulk of the payment has been put towards the debt with 18.2% interest. Once you have paid off Card 1, you then reallocate your $500 per month with the bulk going towards the second highest debt. Here's what your payment schedule will look like:

Interest rate	Monthly payment
Card2	15%	$464
Card3	12%	$36

Continue in this way till you have repaid all the debt. It goes without saying that while you are in the process of debt repayment, you should not spend on your credit card. To start with this will seem very hard indeed, but given that your income is probably fixed, there is no alternative to cutting back on expenditure till you have got your debt clear. Once you have though, rejoice in that your disposable income will have gone up. In our example, you will have $500 a month extra to spend once you completely clear your credit card debt.