Woo Hoo! Its official, I paid off the last of my credit card debt. For the past 2 yrs or so I had been carrying varying balances on my two credit cards. This was strange to me as I really didn't use credit cards before I graduated college and bought my house. In school I just had a debit card or paid cash for things I bought. I think I went a little crazy though when I got a job and thought I had all the money in the world. This led to me hoping on the consumerist bandwagon and spending way above my means, but that’s a topic for a different article.
Today I’m here to talk about what I did to pay off my credit cards. No it’s not earth shattering or mind blowing, I simply paid enough money to make the balance say zero. Yea, not exactly rocket science, but I’ll tell you what worked for me in paying them off.
The First Step is Admitting You Have a Problem
So like I said, for the past 3 yrs or so I had been carrying balances on my credit cards. First I want to admit and acknowledge that this was really, really stupid. My credit cards have an interest rate of 16.24% and 8.00% respectively. That’s not exactly cheap money. I honestly don’t know why I still have the card with 16.24% interest, as it really doesn't even have that great of rewards or incentives…I should probably think about doing something about that one. One thing ok that I did by accident was to not raise my limits. I started with limits of $3k on the 16.24% and $5k on the 8% card, and even though I was offered the option to raise my limits, I never did. This worked to my advantage because even though $8k is a lot of credit card debt to potentially be in, it’s not an unrecoverable amount like the horror stories of $50k in credit card debt with hundreds of dollars in interest each month.
So for the first year or so I was really just paying the minimums plus whatever else I felt like throwing at it. This amount varied each month, and I obviously wasn't really getting anywhere. I truly wasn't that concerned about it because my amounts weren't horribly high so I wasn't seeing a crazy interest amount each month. Then at one point I charged multiple big home projects and bought a bunch of consumerist stuff. This ballooned my balance to an amount that gave me some concern, somewhere around the 4-5k mark.
Instead of just paying the minimum plus whatever, I decided to pay a set amount each month towards each. I did some mental calculations and decided to pay $100 to each card, plus $100 to my student loan. I did this for probably a year and a half or so, again not making much progress. Every month I would pay my $100 to each card, and I’d always seem to just go back out and put that amount or more on each card. So I really didn't make that big of a dent and actually added more to the debt. The continued spending plus the fact that $100 wasn't much at all for a decent payment kept me just sort of treading water, but slowly sinking into more debt.
Then around November 2012 or so I had some other big charges for things that I should have been able to use an emergency fund for, but guess what, I didn't have an emergency fund so onto the credit cards it went. This brought my balance to around $7500 between the two cards. My limit was $8,000 so I was almost maxed out on my credit cards. Yikes!
A New Strategy
At the start of the New Year I decided to get serious with my debt situation. I vowed to pay off my credit cards as quick as possible. From previous experience I knew that paying the minimum plus whatever wasn't a good strategy at efficiently paying down debt. I also knew that paying a split amount between the two didn't really seem to work, especially when it was such a little amount. So faced with a little under $8k of debt I took to the internet in search of ways to pay off debt fast. I ended deciding to go with the Dave Ramsey debt snowball method.
The debt snowball is basically where you focus on paying off the lowest debt first by focusing the majority of your cash at it and paying the minimums on all debt except the one you are trying to pay off. You then roll the amount you were paying towards the debt you paid off and roll it into the next one. Just wash, rinse, and repeat until you’re done with paying off your debt. This method is effective because it will keep you paying the same amount each month, but will gradually keep building your snowball into paying more and more cash towards each debt.
With the debt snowball method in hand I took a look at my newly formed budget. I looked at the numbers and figured I could pay $350 each month towards debt. So I started my snowball and paid $300 towards my 16.24% card which had a balance around $3k and $50 towards the 8% card with a balance around $4.5k.
Hide Yo Kids, Hide Yo Wife...Hide Yo Credit Cards
Before I started paying down the credit card debt however, I vowed to not create any new debt. For me I knew the only way this would be possible is if I got the cards out of my wallet. Out of sight, out of mind is the best way for me to forget about stuff. With the cards being in my face every time I opened up my wallet, I would be tempted to charge them up with useless junk. So I took them from my wallet and placed them in my locked filing cabinet. Safely stored away I wouldn't be able to spend on them.
In January started my snow ball method. By March I had made a decent dent to the tune of $1200 bucks towards the 16.24% card. It just so happened that since I get a bi-weekly paycheck I had three paychecks in March. So I was able to pay off almost another $1500 bucks towards the debt by using the extra pay check. I scrounged up another few hundred bucks and by the start of April I was had paid off the 16.24% card.
So I then moved my $300 into the $4.4k balance and paid $350 in April to that card. It also happened that since I wasn't concerned about taking charge of my financials for the most part until 2013, I had given Uncle Sam a nice loan and received a nice tax return to the tune of $2500 bucks. This covered half of my balance. Woo Hoo!!!
Now with a little under $1600 left to pay I caught another break. I just finished closing on a refinance for my mortgage in May. This means I don’t have my first mortgage payment till July. So between the mortgage payment I didn’t have to pay for May and my regularly scheduled May snowball payment, I had enough to officially paid off my CC debt!!!
This makes me credit card debt free as of the start of June, and it feels awesome! I paid off my $7.5k in debt in around 5 months, using part of a snowball and a lot of well timed refunds. The credit cards are still locked away in the filing cabinet, and it’s going to stay that way.
So to recap, here are the take aways to get from my “pay off credit card debt experience”.
1. Use the debt snowball method
It isn’t technically the best thing to do in all cases if you want to minimize the amount you pay in interest, although with me it worked out as my smallest balance was also the highest interest. I only had two cards and paid them off relatively quickly, so I didn't get the full snowball, but I’m confident it would have worked had I had a lot more cards and a lot higher balances.
2. Use your “extra” paychecks to pay down debt
If you get paid bi-weekly you should have two checks each year that probably aren’t accounted for in your monthly budget. For me these are in July and August as there are 3 pay periods in those months. Instead of spending those on consumerist or unnecessary stuff, put them towards debt. This will help to take out a big chunk of debt quickly.
3. Use any windfalls to pay down debt
Whether this is a tax refund or a “free” month of mortgage payments, these opportunities to pay down debt can really knock off a ton of what you owe.
4. Keep your limits low
By not raising the limits when the credit card companies offer to raise them, you sort of limit yourself from getting into an unrecoverable debt situation. Had I had more than an $8k limit, I’m sure I would have done more damage to myself that what I already did.
5. Don’t charge anymore on your credit cards
This one is the most important of all of my tips. Don’t use your credit cards after you have decided to pay them off!!! For me this required removing them from my wallet and locking them in a filing cabinet, removing the daily temptation that was staring me in the face. Do what you need to do, but quit charging stuff to your card.
What are some of the things you've done to pay off credit card debt? What good advice would you give to others paying off credit card debt? Leave your thoughts and comments below.