Most Americans have credit cards and almost all of them carry balances on those cards. A lot of people have more than one credit card with a balance on it that they struggle to pay off. Are you one of these people? Don’t be ashamed if you are. I was one of these people myself, but I was able to get out of debt with the help of my sister.
I am a shopper. I always have been and I always will be. I wasn’t buying designer clothes or anything, so when I finally added up the debt total, I was in disbelief. Shock was all over my face. I just couldn’t believe that I racked up that much debt myself. Somehow I had managed to get myself in the hole $15,000. By myself. It was time for an intervention, and my sister graciously accepted the challenge of helping me become debt free.
Here are the steps we took to get me out of debt.
Organize your APRs from highest to lowest. I know this might sound backward to some of you, but it’s a lot easier to pay off the higher APRs than the higher balances. And remember, the higher the APR, the more you are giving to the credit card company each month in interest. So keep that in mind as well!
I used a spreadsheet to keep all my cards organized. I listed the card, APR, amount due and due date on the spreadsheet.
This can be a challenging step if you aren’t organized. The whole reason you are doing this is to get out of debt.
I needed the most help from my sister to help keep track of my spending in this step. I went on a very harsh $80/week cash only system where I would go to her house for dinner and she would hand me my $80 cash from my own bank account. Yes, she had complete control over my finances. I don’t wish this on anyone, but it worked for me…and I was the one that suggested it.
We had another spreadsheet that we used to budget everything. The $80 that I received was used for groceries, gas and anything else I had leftover. Needless to say, I didn’t do much else because $80 a week doesn’t get you very far!
Once we had the spreadsheet ready (it used all sorts of formulas), we mapped out a plan. I believe we started putting $300 toward the cards and then I put $75 every 2 weeks into a savings account. We called that my “Oh Shit” account.
When you review the maximums you can pay, make sure you don’t over do it and then overdraw your account. Do what you can do within your means.
This step was the hardest for me to accept. I just didn’t want to pay off the highest APR over the highest balance. That sort of killed every other debt solution I knew of. But, it makes sense.
Let’s say you have credit card A with a $1,000 balance. The APR on CC (stands for credit card)-A is 25%. That would mean you are paying $250 in interest alone. That’s a lot, especially since you aren’t getting anything tangible as a result of that $250. Credit card B has a $1,000 balance as well. It’s APR is 15.99%. That means you are paying $159.90 in interest. It’s much less than CC-A’s interest, so you pay off CC-A first. Then come and tackle CC-B.
Meanwhile, pay minimums on the other cards you have while you are paying off the biggest APR card.
Congratulations! You paid off your first credit card using this method. That deserves some sort of celebration, don’t you think? Go celebrate with a dinner out with friends, or a yummy bottle of wine. If you go out, take cash with you or use your debit card. Just because you paid off this credit card doesn’t mean you can start spending on it again. And you have other credit cards that you need to pay off too, so be careful not to over-indulge.
Keep moving down your list of cards by APR and paying them off. It’s a snowball effect in the best way possible. Because you are paying minimums on the other cards in your list, you can apply those minimums to your larger APR card that you are paying off to pay off faster.
Example: Credit card A has a minimum of $100. Credit card B has a minimum of $80. Credit Card C has a minimum of $70. And credit card D has a minimum of $90. These are in order of APR already. You have paid off CC-A! Congrats! Now, you can apply the amount you were paying on that card – say $500 to CC-B’s minimum balance to make a total paid each month on that card $580. Once that card is paid off, you do the same with CC-C and pay $650/month. Finally, you finish out by paying $740/month to credit card D.
So, when will you start using these steps to get out of debt?