Five Steps to Getting out of Credit Card Debt

Brandon Bennett -
  • Credit card debt has reached over $930 billion dollars in the United States and will continue increasing every year.
  • With average APRs of 15-25%, it's no secret that the longer you delay trying to pay off your credit card debt, the more difficult it will become as the interest continues accruing.
  • You must act now if you ever want a chance of improving your finances.

1. Figure Out How Much Debt You Have

Most people don't even know how much debt they have and blindly throw money at their credit card bills with no strategic plan. This is what the card companies want because the longer you're in debt, the more interest they make.

I suggest using a tool like Personal Capital which will aggregate all your accounts and show you how much money you have and how much you owe. This will make it easy to track your debt each month as you slowly start paying it off.

You can also do it the old school way and write it down on a piece of paper or use a spreadsheet, but then you will have to manually update it every month.

2. Decide Which Card to Pay Off First

Now that you understand how much you owe; you can now start deciding which card to pay off first

There are two methods that people use:

  1. Standard method: pay the minimums on all cards, but pay more money to the card with the highest APR. Once you pay off the first card, repeat with the next card with the highest APR. This option makes the most sense financially because you likely want to pay off the card that is costing you the most interest each month first.
  2. Snowball method: pay minimums on all cards but pay more money to the card with the lowest balance first, repeat with the next card with the lowest balance. This method is popular because it gives people a small win when they pay off a card and then gives them motivation to continue paying off their remaining cards.

So, think about which method you think would be most beneficial to you. Don't worry if you're not sure if you chose the right method, you can always change methods easily.

3. Negotiate Down the APR

This sometimes works and sometimes doesn’t, but it only takes 5 minutes per card, so it's definitely worth trying.

What you want to do is call your credit card company and tell them that you have created a plan to start paying off your credit card debt more aggressively and want a lower APR. If they say no, then say that other credit cards are offering better rates and you've been a customer for x years and don't want to switch.

You can save hundreds to thousands of dollars per month in interest if you're able to lower your APR. So, give it your best shot and don't let them say no.

4. Decide Where the Money to Pay Off Your Credit Cards Will Come From

Unfortunately, we don't all have unlimited money, so you need to find a source for where the money is going to come from to pay off your debt. That means you will need to reduce your spending and shift that money towards paying off your debt.

Look at everything you spent money on last month and determine if there is anything that wasn't necessary. Write it all down and add up the total amount. That amount is how much you will be allocating towards paying off your debt each month.

It might be difficult at first giving up some of your favorite monthly purchases, but I guarantee you will feel much better having no debt instead.

Every bit helps a lot, so don't get discouraged if you're only able to cut out $20 or so out of your spending. Building the habit of consciously reducing your spending to pay off your debt will compound and eventually you will be motivated to save even more.

5. Get started

Don't wait until next week to start, do it now. Starting right now is the most important thing you can do to finally get out of debt.

So put a side that Netflix series and start tackling your debt!

To recap:

(1) Figure out how much debt you have, (2) decide how you want to pay it down (standard vs. snowball method), (3) negotiate your rates, (4) decide where the money is coming from and (5) get started.

*Disclaimer: I am not a financial advisor. The ideas presented in my articles and videos are for entertainment purposes and not to be taken as financial advice.