How to Get out of Credit Card Debt

It is actually possible to get yourself out of debt. You must be disciplined and create a plan that you are willing to follow. The steps below can serve as a useful guide when creating that plan.

Determine how much debt you have.
This seems obvious, but how many of us actually create a monthly budget (much less follow that budget)? Do you know how much money you are spending in a month? Do you know how much income you have in a month? Surprisingly, many of us can answer all these questions with a no. We often lose track when getting into debt because these totals may be too painful to face. And so, the downward spiral begins.

  1. Gather all bills you pay each month. Don't forget to include anything that is automatically withdrawn from your account.
  2. Add them all up.
  3. Determine the interest rates on all of your accounts.
  4. Be honest with yourself about total amounts. Don't sugar coat anything, and in fact, err on the side of caution and inflate anything that you are not absolutely sure of.
  5. Use a debt calculator to figure out how much time it will take to pay off all of these bills if you were to pay them at your current rates.

The amount of debt carried by the average American in 2007 was a total of $6600. If that were paid back at an interest rate of 16% and with monthly minimum payments of 2%, it would take almost 30 years to pay off, during which time you'll have paid a whopping $11,173.50 in interest.

Try to minimize use of Credit Cards
If at all possible, stop using your credit cards. Here are some tips:

  1. Instead of your cards, carry cash. By using cash you will become subconsciously more responsible with your spending. It's much easier to rationalize a charge of $500 worth of merchandise than it is to lay five $100 dollar bills on the table.
  2. Take out enough cash every week to meet your requirements, but if you deplete this money do not take out any more.
  3. Use a debit card instead of a credit card for purchases that require a card or some sort.
  4. Keep your cards out of your wallet and at home instead. Not only is this more secure, but you will be forced to go home and will have time to think about that possibly unwise purchase.
  5. Some experts recommend keeping cards in safe deposit boxes or even more difficult places to access, like a block of ice!
  6. You cannot live with the mindset that you can pay this or that off at the end of the month, because we all know how these plans change come month's end. Be patient, save your money for those big purchases.
  7. And finally, the motto here at Superior Debt: Don't buy stuff you cannot afford!

Consolidate Your High Interest Debt if Possible
Determine what your highest interest rate cards and transfer those balances.

  1. You will want to pay your cards off starting with the balances with the highest interest rate.
  2. Transfer those balances to your card with the lowest interest rate.
  3. Consider opening an account with a 0% APR introductory period. Be careful that this doesn't balloon to 16% or some other ridiculous amount after the introductory period ends.
  4. Be sure to look at all the fine print. Make sure that there aren't any yearly fees, check out the late fee penalties, and check out the interest rate changes if you do miss a payment.
  5. Don't close your accounts just because you transferred the balances. Doing so may adversely affect your credit.

Pay as Much as Possible
Lowering your overall costs is as simple as paying the debt quickly.

  1. Pay more than the minimum. Pay as much as you can each month; if you have drawn up a budget, you should know exactly how much this is.
  2. Use a debt calculator to see how much difference this makes. Remember your $6600 liability at 16% interest? Paying the minimum balance (2%) would pay you out in 30 years after making over $13,000 in interest payments. But if you doubled your minimum payment, you'd be out in 2 years and seven months, and you will have paid only $1351 in interest!
  3. It is OK to just make minimum payments towards your low interest cards. Get the big ones done first and quickly. Once your highest interest accounts are cleared off, it will be fairly easy to pay the small ones.
  4. If you come into extra money, use that to pay down your debt. Don't splurge. You will find that money is much better spent eliminating a high interest card than on a vacation. Now you won't be paying interest and you will be able to afford taking that vacation later.

Good Spending Habits
Overspending probably got you into debt. Learn to restrict your spending and to focus on saving. This is the ultimate solution to getting out of debt.

  1. Always think about what you buy before you purchase anything. Do you need this item? Is there a less expensive alternative?
  2. Create that budget and stick with it.
  3. This week, every time you make a purchase write it down. Look it over at the end of the week and decide what you could have eliminated. Believe it or not, this will make you a much better shopper.
  4. Review your credit reports to see where you are at. Perhaps there is a better way to chip into that student loan debt, and perhaps you have been paying for something that isn't really yours. Making sure that everything on there is correct will motivate you to keep it that way.
  5. Enjoy the little things. Sure, it may be nice during football season to have that flat screen TV, but wouldn't it be better to pick up a book or spend time with the family? Keep in mind that experience often trumps material items.

Get Help
If you can't do it by yourself, you should seek the advice of a professional debt counselor. Of course, that is what we do here at Superior Debt. Fill out the form and you will be contacted by an IAPDA certified counselor who will go over all of your options.