“I want to pay off my credit card debt.”
How many times have you made this statement? Does your credit card debt =0?
After spending during the holidays, accomplishing this goal may seem unachievable. But it doesn’t have to be. If you want to pay off your credit card debt, then follow these 6 steps:
1- Consolidate to one credit card. Ideally, it would be helpful to stop using your credit card. But realistically, it’s not possible unless you carry around cash or use your debit card (which creates additional issues if there is an erroneous charge).
If you have multiple credit cards, pick one credit card to use ongoing. Put the rest of your credit cards in a freezer bag filled with water and place in the freezer. (If you cancel your credit cards, it may adversely impact your credit score – that’s why freezing is a better option.) If you decide to use one of your frozen credit cards, you’ll have to wait for it to defrost. During that waiting period, you’ll have plenty of time to re-evaluate your purchase and how it will impact your goal of paying off your credit card debt.
If you think the freezer method will still be tempting for you, then go ahead and cut up your credit cards.
2- Commit to paying in full every month any new amount placed on your credit card. Face it, it’s hard to pay off debt that is growing every month.
Steve wants to pay off his $10,000 credit card debt. However, every month he puts $1,000 new purchases on his credit card. He can only pay $800 a month towards his credit card debt.
In this cycle, he is adding $200 ($1,000 – $800) to his credit card debt every month. At the end of the year, he will have
$10,000 in original debt
+ $2,400 (12 months * $200 per month) in new debt
+ finance charges.
At this rate, he will never pay off his credit card debt. Instead, his credit card debt will continue to grow.
In order to pay off his credit card debt, Steve needs to commit to paying off any new purchases on his credit card the same month he incurs the expense.
3 –Commit to paying a certain amount towards your credit card debt every month. This amount must be more than the minimum payment.
There are different strategies for paying off multiple credit card balances. Some people recommend paying off the credit card with the highest finance charge first. Some people prefer paying off the credit card with the lowest balance first (in order to feel a sense of accomplishment). The only “right way” to pay off your credit card debt is to pick a way that will work for you and take action.
Remember Steve, he has $10,000 to pay off and can only pay $800 a month toward his credit card debt. If he doesn’t add any new purchases to his credit card balance, he will pay off his debt plus accrued finance charges within 14 months. Initially for Steve, this timeframe was too long. But when he considered it took him several years to accumulate this debt, taking 14 months to pay it off was reasonable.
4- Remind yourself regularly of your goal. Why do you want no credit card debt? Is it because you need to save for something else — like a home, education or even retirement? Get to the real reason you want no credit card debt. It may help to write your goal on a piece of paper and tape it to your credit card to remind yourself every time you have an urge to spend. Initially, you may need to remind yourself daily of your goal to help curb your spending habit.
According to studies, it takes 21 days to change a habit. Realistically, it may take longer. While your goal is to pay off your credit card debt, you are really making a lifestyle change – a change in your spending habit. Be patient with yourself during this process. If nothing else, keep receipts and return your purchases when you realize you are spending again.
5- Track how you are doing every month. When your credit card statement comes in, look at your balance and finance charges. Are you making progress? It may seem slow at first but after a few months, you’ll notice a difference.
6- Find ways to spend your time other than shopping. The best way to stop spending is to stop going to stores – physically and online. Whether you’re an impulsive buyer of electronic gadgets or of the latest fashion, stop shopping. Use your time for other things – volunteer, read a book, exercise. Find a more productive and less expensive way to use your time.
Stay focused on your goal and be patient with yourself. Contact us if you need help developing a plan or staying on track. We offer hourly rates and programs.
ABOUT THE AUTHOR:
Niv Persaud, CFP®, CDFA™, CRPC®, is the Founder of Transition Planning & Guidance, LLC. Her firm bridges the gap between financial planning and coaching. As a Transition Consultant, she offers sage advice in all aspects of life – financial, personal and professional. Niv does not manage money and does not sell financial products. Her services include spending plan development, divorce financial review, life strategy and professional progression. Niv actively gives back to her community through her volunteer efforts. She believes in living life to the fullest by cherishing friendships, enjoying the beauty of nature and laughing often — even at herself. Her favorite quote is by Erma Bombeck, “When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left and could say ‘I used everything you gave me’.”