Next payday I will pay off my last credit card. I spent a few years running up the debt, and a few years paying it off. Now the end is near. I’ve cut up all my credit cards and will be turning my financial attention to getting rid of my student loans next.
I don’t have any “credit problems.” Never over the limit, never late, not into the penalty interest rates or fees. I had four credit cards with balances at the high point of my debt. It was annoying and somewhat stressful and made paydays kind of depressing, but not quite a crisis. I’ve got some ideas about debt reduction. These won’t be much use if you’re into real financial trouble, but hopefully will be new ideas that you haven’t heard before in all those personal finance advice columns. (I’ve read a lot of those and I hate to read the same tired ideas over and over, so I’ll only repeat the stuff that is really true.)
So here goes. A few things I’ve learned about paying off credit cards:
Cut them all up. If you really need one for some reason, just call and say you lost it and they will send you a new one. Slightly inconvenient, but it will definitely keep you from digging the hole deeper.
If you have more than one card with a balance, pay off the one with the smallest balance first. Now financial advisors may tell you to pay off the one with the highest interest rate first (which makes good financial sense), but can be emotionally tiring. It will boost your confidence and reduce your stress every time you pay off a card. When you pay one off, start paying MORE on the next card with the smallest balance and so on.
Pay an odd amount instead of a round number. Instead of paying an even $100, pay $115 or $135 or such. It adds up more than you think, and you won’t miss the few odd dollars from your budget.
Set a goal. Any goal. Make it slightly challenging. Start with some rough estimates of how much and how long. There are two ways to look at it: a time goal for paying off the card, and a $ amount that you want to pay each month. Next, figure out how much (or how long) you have to pay each month to reach that goal. For a time goal you can get a ROUGH estimate by dividing you current balance by the number of months, say 12 months, 24, 36, etc… (it will be off by a few months since you aren’t calculating interest payments, but you can refine your figures later). If the amount seems too much, extend your time line until you find a figure that will fit into your budget. If you want to pay $100 every month, then divide you current balance by 100 to get (roughly, again) the number of months you will be making payments. If it seems depressingly long, consider making some sacrifices and paying more each month.
Tell people about your goal of paying off your cards. You don’t have to tell them the amount you owe or anything that specific. You’ll probably find you have a lot of friends in the same situation and they will be impressed and supportive of your goals. Personal finance is the last “taboo” and some of your friends may not want to talk about it, but you’ll probably find a few that do.
Whatever amount you decide on, try to stick to it ruthlessly. And pay more if you feel you can (like if you get some birthday money, or a tax return or some other windfall), but cut yourself some slack if unexpected expenses come up that hijack your budget. It happens all the time. If you pay more or less as you can, it should average out to meet your goal over the year. And you can change your goal as needed. Don’t feel like it’s an “all or nothing” situation if circumstances change.
Cut back your expenses where you can, but don’t completely deprive yourself. Pick a few treats you will allow yourself that you can pay cash for and put them in your budget. For me I had to cut eating lunch out at work, so I let myself get something cheaper than lunch, like a latte or mocha a few times a week instead. Now I really look forward to “mocha days.”
Don’t dwell on the “sacrifices” you are making, or dwell on how deprived you feel. It is easy to imagine that other people don’t have to make these kind of sacrifices or don’t have the debt you do, but it’s not true. They just may not talk about it, since personal finance is sort of taboo. Try to think about how smart and realistic you are being and imagine the day when those debts are paid off and you will have extra money to spend on yourself. Think about your financial goals in positive and optimistic terms instead of being pessimistic about it. If you believe in positive affirmation and that you get more of what you think about, then don’t think about how in debt and miserable you are, or you’ll just be more miserable. Be glad that you can meet your basic needs AND pay extra on your credit cards at the same time – you are richer than you think, and doing better than many!
Be realistic. If you’ve spent 3 or 4 years running up the debt, prepare to give yourself 3 to 4 years to pay it off. You may surprise yourself and find you can pay it off sooner.
It sounds silly, but get excited when you can pay extra, and make a game of it. Every time I got some extra cash I’d practically run to the bank, deposit it, and then go online and make an extra payment to my credit card. I kept track of it in a spreadsheet so I could chart how fast my balance was going down. I’m almost sad that I’ll be paying off the last one – it was so fun to strive for the goal! (I know – I’m kind of a dork.)
Keep a savings account, even if it doesn’t have much in it. Now some financial advisers will say you need to have a big emergency fund and some will say it makes no sense to have a savings account paying 2% interest if you are paying 10% on your credit card debt. Both or true and nice ideas, so go with whatever feels right to you. Honestly, my paltry savings account is often just an extension of my checking account. I often use it to even out my monthly budget. Some months I raid my savings account to pay my bills (including my monthly credit card goal), and some months I add a little extra into it. But I have a goal – when I get all my credit cards paid off, I’ll put more in savings. And I’ll have less need to raid it to pay bills.
Consider wiping out your savings account (if you have one) to pay off a card. To me this option starts getting really tempting when my credit card balance is lower than my savings account balance. It sounds scary and dramatic, but can also make you feel really great. Say you have $400 left to pay on a card and you have $500 in savings. You could pay the whole thing off today! Or you may not want to. And it’s not all or nothing. You could go 50/50 (or pick a $ amount that you are comfortable taking out of savings). For example, take $200 from savings to make a nice big extra payment on your credit card and leave the rest in savings. You’re credit card balance will be reduced dramatically and you will feel good about that. Even if you decide not to raid your savings you can feel good that you have the means to do it if you want to or have to. Another positive affirmation!