Too Much Credit Card Debt

Most people have at least one credit card. Many have several credit cards with balances on each and all of them. I am using this plan to cut my credit card debt, and to end, or at least lower my reliance on credit cards.

I recently read an article explaining how it takes 15 years or longer to pay off a typical credit card by paying the minimum payment each month. I didn’t believe it, so I did the math based on one of my credit cards and found that the article I read was true. That was not what I wanted to hear or know. Ignorance truly is bliss. Instead of crying over my newfound knowledge, I worked out this simple plan to greatly speed the process of paying off my credit cards.

No More Credit Cards

No More Credit Cards

My Simple Plan Is Working

I put my plan into action starting with my July 2011 payments and I'm seeing a faster debt reduction in just this few short months. I started with balances on 7 high interest cards, and I have paid off two of them already. I will have another one paid off after January. When you read the plan below, you'll understand how these debts will disappear faster and faster as I continue using this plan.

This Plan Also Works With Mortgages And Car Payments

At this stage, I am using this plan to eliminate credit card debt. It's possible to include mortgages, car loans, furniture store loans, or any other recurring payment loan into the plan as well.

Eliminate Your Need For Credit Cards

Step 1

In order to have success with this plan, you must stop using your cards. At least stop using the ones you wish to drop. If you must have a credit card for emergencies remember to keep your balance low, don’t use it unless it's necessary, and pay off the balance each month.

Use Debit Cards Or Cash Instead

Instead of using your credit cards for every day purchases like gas, groceries, clothes, and convenience store items, use cash or a debit card from your local bank or prepaid debit cards available online and in many stores like Wal-Mart, Target, and many others. Yes, most prepaid debit cards have monthly and/or transaction fees, but even if you pay $20 a month, or even more in various fees, you will still be saving money over the high revolving interest charges most creditors charge.

Collect Your Information

Step 2

The information you need to collect is your credit card balances, monthly payment amounts, and interest rates charged by each creditor.

Make Your List

Step 3

This is the point where you will have to decide for yourself as to which card you should end first. This is a balancing act between lowest amount owed, highest amount owed, highest interest, and other factors. Personally, I started on the credit card with the lowest balance so I could get it out-of-the-way fairly quick. It also gave me a great sense of accomplishment and the drive to continue with my plan.

Now that you have decided which one you want to attack first, put it at the top of your list. List the others below the first one. Which order you put them in is not important at this time, so don’t worry about those yet. You'll understand in a few minutes.

Decide On a Budget

Step 4

Once you have decided on your order of attack, make a chart with your debts listed in order of elimination. Now add up your monthly payments and add 20% to that number.

Example: If your current total payments add up to $450 a month, add $90 to the budget. If you’re income won’t allow 20%, add less. But, if your income will allow it, you can add more than 20%. Even by adding just 5% to your budget plan will help. You may have to make some spending adjustments and small sacrifices to do this, but it will be worth it.

Put Your Plan Into Action

Step 5

Make minimum payments to all of your cards except the first one on your list. Add the extra budgeted amount to that one each month until it's paid. After you pay it off in full, you can close that account.** Again, that is a decision for you to make. Mark that one off your list and attack the next one. Don’t change your budget amount. If you budgeted $450 + $90 = $540, then continue paying $540 towards your remaining debts. Example: Let's assume your minimum payment on card #1 was $80, by adding the $90 to that payment, you were paying $170 each month until paid. Now take that $170 and add it to the minimum payment of the next one. If you continue to add the previous payment amount to the next card on your list, your debt reduction will start to snowball and each card will be paid off even faster.

** Credit Score

Some credit advisers tell you not to close your accounts because it could have a negative effect on your credit score. Personally, I don’t care if I lose a few points on my score. As my debt gets lower and lower, and I continue to make payments to my other debt balances on time, my score will go back up. My focus is on eliminating credit card debt, not on retaining my current credit score. Also, I believe that most of those credit advisers you see on TV are scammers.

Stick With The Plan

Step 6

Don’t quit. Keep your plan in action until you have reached your goal. I know there are times when you will be unable to pay the full budgeted amount. When that happens, isn’t it nice to know you have some breathing room? But, get back on budget and continue your debt elimination plan as quickly as you can.

***Holiday Shopping***

During the Holiday shopping season I realize it's a difficult to stick with the plan. Just remember; The Holidays come around every year. If you use that excuse to max out your credit cards every year, you will never be out of debt. Personally, this is one of the sacrifices I'm making to get out of debt. My family may not get everything they want for Christmas this year, but I can’t let that stop me, and they will just have to understand my goal. I do not want to leave my debt payment responsibilities to my family after I am gone from this world. In other words, “Before I die, I want to have no debts".