When you’re buried in a mountain of credit card debt, you can waste years trying to dig your way out in one wrong direction after another. There is a straight path to paying off credit card debt. Here’s how to find it.
Step 1: Pick a strategy (and stick to it).
a) Pay off the smallest balance first.
Double (or triple) the minimum payment on the credit card with the smallest balance, and continue doing so every month until it’s paid off. At the same time, continue making minimum payments on all of your other credit cards. Once the card with the lowest balance is paid off, then move on to the one that is now your new smallest balance.
b) Pay off the most expensive balance first.
Apply the same payment approach as outlined above for the smallest balance strategy, but applied to the card with the highest interest rate. Double (or triple) the minimum payment on that card while continuing to make minimum payments on all of the others. Once the highest-interest rate card is paid off, move on to the card with the next-highest interest rate.
c) Transfer your balances to lower-interest cards.
Determine if you have room on a lower-interest credit card to transfer a balance (or balances) from other cards with higher interest rates. Just be sure to find out about transfer fees first, to be sure it’s worth the trouble. Ideally, you can get all of your credit card debt onto one or two credit cards. Then aggressively work toward paying down that debt, especially since you need not worry about making minimum payments on any other cards.
Note, if you don’t have room on a lower-interest card to transfer any or all of your balances, you may be tempted to take out a new credit card for this purpose. This certainly can be an effective strategy, but be forewarned, it is a risky one. If you’re notorious for maxing out all of your credit card balances, the last thing you need is a new account to tempt you. Even the best of intentions have been known to fall by the wayside.
Step 2: Stop using your credit cards.
If you’re in the habit of charging everything, get out of it!
If you don’t have the cash on hand to buy it, then don’t spend it. Yes, you can tell yourself you’ll tack the extra charge onto your credit card payment at the end of the month, but you might forget or talk yourself out of it, as in, What’s another fifty bucks on top of the thousands I already owe? It’s a step in the wrong direction, that’s what.
If your spouse or partner is not participating in this process, get them involved. Decide together your best payoff strategy. The more ownership you both feel for the plan, the more committed you’ll both be to its execution. To that end, consider sharing your goals with the kids. If they’re accustomed to the instant gratification made possible via credit cards, making them privvy to the plan can make the adjustment an easier (i.e., more pleasant) one.