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Get Out Of Credit Card Debt!

My current MasterCard statement has a little notice in the top corner stating that if I only make the minimum payment on my bill, it will take about 18 months to pay off the credit card balance.  This is on a balance of $165 and a relatively low interest rate of 5.99%.  One and a half years!

My HBC rewards card balance of $210 will take 82 months (almost 7 years!!) to pay.  I can’t even imagine how long it would take to pay off a substantial balance at the 18 -19% of most credit cards or, worse, up to 30% on retail store charge cards.

If you are currently holding a balance and continue to use your card when credit becomes available you are basically paying your future income to the credit card companies for decades to come.  Here’s how to get out of credit card debt for good.

How To Get Out Of Credit Card Debt

It’s time to get serious about unsecured debt and resolve to do everything you can to get out of credit card debt as soon as possible.  It may help to take a good look at all your statements together to see just where you stand.  You may be shocked at the total.

On a sheet of paper, make a list of all your debts including loans and credit cards.  From your statement, record the outstanding balances, the minimum payments and the interest rates.  Add up these amounts to get your total indebtedness and how much you are paying each month.  From the “minimum payment notice” figure out the exact date the card will be paid in full.

Are you shocked yet?  Pick one credit card with the best features for you and cut up the rest.  Be sure to call or write to the companies to cancel the accounts.  Keep your sheet of paper on hand to keep the information visible, especially when you’re tempted to charge “just this one” small purchase.

Now, most debt counselors will advise you to apply any money you have in savings to the balance, and start paying off the card with the highest interest first.  I have a different strategy.  Unless your savings can pay off the debt in total (or a large portion), keep it intact.

Psychologically it feels better to have an amount in your asset column, and depleting it may not make much of a dent in the liabilities column.  If you do have an unexpected expense such as the $140 I needed for a new furnace motor recently, you can use your cash rather than increasing the credit card debt further.  Also, you are more likely to think twice before using your own money for a frivolous purchase.

My approach to getting out of credit card debt would be to put every dollar I could afford onto the smallest balance, regardless of the credit card interest rates.  Again, psychologically, it gives you a boost to see one debt paid off and then an increased payment can be made on the next highest balance and so on, until everything is paid.  Then, resolve to pay the balance in full every month.

If you like, you can make up a spreadsheet that shows how you are progressing.  People who really put their minds (and funds) to it can be entirely credit card debt free in a relatively short period of time.

Take another look at the total monthly dollar amount required for credit card debt payments, then think about how you could use that money to save for a worthwhile purpose or future security instead.  It’s an empowering feeling to get out of debt.

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8 Comments

  1. Credit Cards Canada on December 14, 2010 at 7:44 am

    I must respectfully disagree with you. Every penny put toward paying down the debt on the credit card is one more penny not tearing interest away from your hard-earned income. Yes, it is true that psychologically one seeks to have numbers in the assets column, but one can brace oneself psychologically in more productive ways. For instance, one can say: “When my credit card is paid off, I will treat myself to ______________” Just put in whatever you like – a movie, a spa treatment, an NHL game…whatever. The best part is that you can same that with the smug satisfaction that by paying off one’s debt quickly, you have effectively created extra income with which to occasionally treat yourself.

    So, there are two ways to brace oneself psychologically; one involves paying interest to credit card companies and the other involves treating yourself. I know which I would choose.

    • Sustainable PF on December 14, 2010 at 8:24 am

      I agree that paying off the debt makes sense, but I disagree that rewarding yourself w/ another purchase (likely on the card and hence more debt!) is a good idea. A pat on the back will do.

      To Boomer, i’d have to disagree with paying the smallest balance regardless of the interest rate. You will always “know” you aren’t paying off the most detrimental debt so I am not sure the psychological benefit is as great as presented here.

  2. schultzter on December 14, 2010 at 9:07 am

    Again, Quebec vs. Canada, I’m pretty sure in Qc the credit companies have to apply your payments so as to minimize the interest you pay; but how does it work in other provinces?

    • Boomer on December 14, 2010 at 5:02 pm

      Schultzter: Your monthly payment is first applied to accrued interest (on cash advances and then on purchases) but if you only make the minimum payment it leaves precious little to go on the principal amount and that is why it takes so long to pay the debt.

  3. Briana @ GBR on December 14, 2010 at 11:47 am

    Yesterday, I ranked my credit card debt in order of importance, and I’m going for a pretty aggressive debt snowball, putting any extra money towards the debt, especially since we’re searching a house.

    • Boomer on December 14, 2010 at 4:59 pm

      Briana – good for you. You’ve put your mind to being debt free and I know you will be successful.

  4. nancy (aka moneycoach) on December 14, 2010 at 9:55 pm

    I’ve noticed those little “headsups” on my statements too. If only they had started years ago, we Canadians may have been a little less in debt. It reminds me a bit of the surgeon general’s warnings on cigarettes.

  5. LAW on August 1, 2013 at 1:52 pm

    Good article; the credit card companies sure LOVE it when that big fat balance sits there on your account month after month. A side note I would like to mention too: one card I’ve seen shows a minimum payment of say, $60 due for any given month. So let’s say you pay more than the minimum ($200). The balance obviously would change to reflect the new amount owed and it would also tell you, you owe $0.00 till the next billing period. So in your mind you think, Oh good so I don’t need to pay anything else for the duration of the current month..WRONG!! If the card contains an annual variable interest rate, say 20 percent, that interest will get tacked on at some point before the current billing cycle ends. And lo and behold, when the following month comes and you go to check your account, only to find to your chagrin, that the balance actually INCREASED.

    The moral of the lesson here? That even though you make a big early payment in the month, that does not mean that you can go about your business and not think about that amount. On the contrary, you need to be AGGRESSIVE in attacking not only the principal balance, but that pesky interest amount too. So make another decent down payment towards your credit card balance, BEFORE the billing cycle ends, thus either eliminating or at the very least, reducing the potential interest hike going into the next cycle. It all adds up to less $$ being dolled out by you in the long-term.

    Hope that didn’t overwhelm anyone that read this. 😛

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