How To Pay Off Credit Card Debt In 6 Steps

At A Glance – Long term credit card debt is the enemy of your financial well-being. It is like a black hole – sucking everything in and leaving you empty-handed. Paying off your credit card debt will break the chains of that bondage.

6 Steps To Pay Off Your Credit Card Debt

1. Have An Emergency Fund

Why am I starting with an Emergency Fund (EF) and not paying your cards? Because the minute you decide to pay off your debt, you will have an emergency! Your car will break down or your water heater will blow up. If you don’t have an EF, you will have to put this crisis on your credit card and the problem will get worse.

If you already have an EF, great! Skip to Step 2. If not, stop what you’re doing right now and work on this. It’s critical! Not only for debt reduction but just for life. An EF puts a cushion between you and life. When you have a flat tire, it’s not a crisis. You buy a new tire, restock your EF and move on.

How much do you need? A fully funded EF is 3-6 months of expenses in cash. If you don’t have any cash saved, then start with $1,000. This is your Baby Emergency Fund. I don’t want you to wait until you save 3-6 months saved before you start working on your debt. After your debt is gone, go back and finish the EF.

How do you get $1,000 quickly? Sell something on Marketplace, have a garage sale, or take a part-time job. Look at where you can cut spending. Do it quickly and do it now. You should be able to come up with $1,000 quickly. Dig all the loose change out of your car seat.

2. Stop Taking On New Debt

To get rid of this debt, you need to commit to no new spending! You can’t make headway with your cards if you keep putting purchases on them. This will be the hardest step for most people. Spending is what got you here. (How’s that working for you, by the way?) New habits and a new mindset will get you out.

If you can’t pay cash for something, you can’t afford it. Reduce your spending (for a season) to necessities only. And no, getting your nails done or a new car magazine is not a necessity! I know this will be painful, but it won’t last forever.

Start using a budget and track your expenses. Budgeting and tracking will show you where you are overspending and getting off track. If you haven’t used one before, here is a link to an article about Budgeting and an article about Tracking Your Spending. They include simple spreadsheets you can use. They are free for you to download, or you can find many others on the web. There are also apps you can load to your phone that make tracking simple. Give yourself some grace with these tools if you’ve never done this before. It usually takes about 3 months to get the hang of budgeting.

After you have put your expenses down on paper (or an app), do you see areas where you can cut? For now, cut your spending to the bone. The more you can cut, the faster you will get out of this pit of debt.

3. Use Cash

As I said above, if you don’t have the cash for a purchase, you can’t afford it. I know using cash these days is archaic, but it works. When I was in the pit of debt and fear, I switched to cash. Using cash for a purchase keeps you from overspending by letting you feel the emotional pain of spending. When you have to hand over a couple of Ben Franklins to buy the groceries, it makes you think about everything you put in your basket!

I literally had cash in envelopes in my purse. I can hear your question now…No, I wasn’t afraid to carry that much cash with me. I didn’t have ALL my envelopes in my purse. Just the ones I needed for the errands that day. And I get it, going to the bank to get cash and doling it out to the envelopes is a pain. That’s the point. You want to get that debt paid off and get out of this mode of operating AS SOON AS POSSIBLE.

I understand we are in the 21st century and…”There’s an app for that”. There are lots of apps you can use to help with your spending. Some of the more widely used budgeting apps are Mint, YNAB and Every Dollar.

4. Reduce the Interest Rate Or Transfer The Balance To A 0% Card

Call your current credit card companies and ask for a reduction in your interest rate. This may be a long shot, but the worst thing that can happen is they say no. This will depend on your payment history and your credit score.

Another way to reduce your interest rate would be to transfer your balance to a card with a 0% offer. (You may not be able to do this if your credit is trashed). Some cards offer a 0% interest rate for a period of time. Say 12-18 months. You can transfer your balance and pay the card down while the interest meter has been turned off. This will give you a bit of breathing room. If you are able to do this, push through the pain and pay everything you can find on the balance before the interest starts running again.

Special Note: There is normally a fee to transfer your balance onto a new card. Do the math and be sure you’re not paying more in fees than you will save in interest.

This tactic is a form of debt consolidation, and I’m not usually a proponent of debt consolidation. Let me say that again. I DON’T like Debt Consolidation. Why? Because it won’t work without a behavior change. You must change your behavior with spending and saving. Otherwise, you will consolidate your debt, clear your credit cards and start filling them up again. Not a good plan.

If you can transfer your balance to a 0% card, you should CLOSE the cards you’ve emptied to eliminate the temptation to spend on them.

5. Start Paying Off Your Credit Card Debt

Here’s the real meat of the article! Let’s get those cards paid off!

There are 3 main ways to pay off your credit card debt. They are the Snowball Method, the Avalanche Method and the Hybrid Method.

I will explain them here. Also, here is a link to an article about paying down any kind of debt and includes further descriptions of these methods. How To Pay Off Debt.

Snowball Method

This method is fairly simple. List your balances starting with the smallest balance down to the largest. Ignore the interest rate, just rank them by balance amount. Make minimum payments on all but the smallest card and throw everything you possibly can at the small one until it is paid off. This means any extra money you can get your hands on goes to this debt. This could be money from a side job, overtime, or by selling something.

After the first card is paid off, take all the money you were paying on it plus the minimum payment you were making on the second card and put it on the second card. You keep doing this for each credit card until all are paid. Each time adding the money from the payments on the previous card. This is the snowball and it gets bigger as it rolls to each card.

The snowball method gives you an emotional boost with a quick win. This Atta-Boy can help you stay focused and keep going. The downside is because it does not take interest rates into account you could pay more in the long run.

Avalanche Method

The Avalanche Method is similar to the Snowball, but it considers the interest rate instead of the card’s balance. In this method, list your balances starting with the highest interest rate down to the lowest. Pay minimum payments on all but the first card on the list. Throw all the money you can at the first card until it is paid. Then, like in the Snowball, you add what you were paying on the first card to the minimum payment of the second and keep going till all credit cards are paid.

The avalanche method can save you some money in the end. If you focus on your highest interest card, you can save some money by eliminating that debt first. The downside of this method is it may take months to slog through the first card’s balance.

Hybrid method

The Hybrid Method combines the pros of the Snowball and the Avalanche. Using this method, pay off one or two small cards first for that quick win to get you motivated. Then, as you feel you have the discipline, start working on the card with the largest interest rate.

Last thought about payment method

Which method should you use? My normal advice about debt repayment is, it’s really up to you. Choose what will work better for your situation and temperament. In the case of paying off credit card debt, I would suggest the Avalanche method if you can bear it. Why? Credit card debt carries such high interest that, if it were me, I’d attack the highest interest card first.

6. Track Your Progress

Make yourself a visual. A chart or graph. Put it on your phone and your computer. Put it on your refrigerator. Make sure you squeeze every bit of feel-good from your progress. Give yourself a pat on the back for every little win.

This whole credit card payoff process won’t be easy. And it won’t be quick. As Dave Ramsey says, “You might have wandered into debt, but you can’t wander out”!

It may help to have an accountability partner along this journey. Find someone who will walk this road with you and say hard things because they love you.

Go to my Started At 50 Facebook group and let us know how you’re doing. We would all love to celebrate your progress!

I’ve Paid Off My Credit Cards, Now What?

First, WOOHOO!! Congrats on making this major milestone in your finances and your life. Doesn’t it feel good?

Now it’s time to put your big-girl pants on. FROM NOW ON AND FOREVERMORE, if you put purchases on a credit card…PAY THEM ON TIME AND IN FULL every single month. This is the only way to use these beasts. Now, you can be in control of your credit rather than being at the mercy of the bank!

I would suggest that you also continue to budget and track your spending. You may not need to do this forever, but it is a good way to put guard rails around your finances.

What Does The Bible Say?

Conclusion

“Why go through all this pain”, you may ask? Carrying continuous, strangling debt is no way to live. It sucks the joy out of life, creates stress and will eventually affect everything.

When you work through the process of paying off your credit card debt, you will have freedom and control. Freedom from fear and anxiety and control of your future. You may have other debt in your life that needs to be addressed. If you do, you have the skills and the mindset necessary to attack the rest of your debt. You are now in a position to create the amazing life you want.

Key Takeaway – Long term credit card debt is the enemy of your financial well-being. Paying it off will break the chains of that bondage.

Assignment 1 – Commit to STOP using your credit cards TODAY!

Assignment 2 – Look at all your credit card statements. Make a list of all the balances and interest rates. Decide which payoff method you will use.

Assignment 3 – Pay them off as aggressively as possible

Coming Soon – The Power of Compound Interest

If you need any help or encouragement in your debt pay-off journey, use the contact form to contact me or go to the Started At 50 Facebook group.

Have you been able to pay off some of your credit card debt? Great! Leave a comment so we can all celebrate with you.

How To Pay Off Debt

At A Glance – Debt is NOT your friend. It robs your future, and more stuff won’t make you happier. Pay off your Debt as quickly as possible. It won’t be easy, but it will be worth it! Then you can start to design the future you’ve always dreamed of.

Accumulating debt has become an American past-time. Everything we want comes with “easy payments”, so why not buy it? Often-times we don’t realize how deep we’re in until we realize we can’t get out.

How many of us find ourselves thinking things like:

I don’t want to buy some else’s car problems, so I need to buy a new car.
My new baby needs the best and safest equipment, so I’ll just put her cute new stuff on my credit card.
My boss was really unreasonable today, so I’ll go to that new bar for a happy hour with my friends.
I need all this stuff to keep up. I wouldn’t want my friends to think I’m not doing well.

It feels normal because it’s what everyone else is doing. We have become professionals at retail therapy.

We’ve created a lifestyle that’s impossible to maintain. And we fund it all with debt. Take my word for it – this will NOT bring us joy. It only brings us bondage. Debt is a mental, emotional and financial drain that robs your future.

Debt Is A Product

Did you know debt is a product? Just like your favorite candy bar or the shampoo you use, debt is a product we buy. And just like the other products, it is heavily marketed to us.

Debt is sold to us in the form of credit cards, car loans and mortgages.

You Can’t Borrow Your Way Out

The only way to get out of debt is to quit borrowing. Taking out one loan to pay off another is just moving the debt around.

If you are serious about wanting to get out of debt, you have to stop taking on new debt. You can’t get out of the hole by digging it deeper.

What Does The Bible Say About Debt

The Bible has a lot to say about money. That is one of the things I explore here at Started At 50. If you study God’s word, it doesn’t take long to see that debt is not part of His plan for us. He knows it’s not good for us. Here’s a couple of examples.

Proverbs 22:7 – The rich rule over the poor, and the borrower is slave to the lender.

Romans 13:8(a) – Let no debt remain outstanding, except the continuing debt to love one another.

What Is Debt?

What is considered debt? The definition of debt is simple…Debt is anything you owe to anyone. Having debt means you are funding today’s life with tomorrow’s dollars. When does it end?!!!

It can end here and now. You CAN get out from under the stress and the bondage of debt. It won’t be easy, but it is possible. You can do it with a few simple tools and a plan.

Let’s talk a bit about the different kinds of debt and the effect debt can have on your life and then we’ll dive into the nuts and bolts of Debt Payoff.

Kinds Of Debt

Credit Cards
Student Loans
Car Loans
Mortgage
Personal Loans
Medical Debt
Payday Loans
HELOC
401k loans
Loans from Your Parents
“90 Days Same As Cash” Purchases
Financing Your Kids Braces

Did you see anything on this list you had not previously considered debt? Many of these types of debt are common in our culture. It’s normal to have a Car Loan or Student Loans. Other types of debt such as Payday Loans are truly insidious, but they are all damaging to our financial well-being.

How Can Debt Affect You Emotionally?

Frustration – It can be frustrating to have an unexpected expense that has to go on the credit card. Just when you thought you were making headway! Frustration can lead to giving up.

Denial – Do you shove unopened bills in the drawer? You just don’t want to know how bad it is! Denial could lead to unhealthy coping habits like drinking in an effort to forget.

Stress – Do you have more month than money? How can you juggle all these bills. Even with making minimum payments, you don’t have enough to go around! Stress could lead to weight gain or relationship problems.

Fear and Panic – Do you let all your calls go to voicemail because you’re afraid it’s a collector. Are you fearful your credit card will be denied while you are at a restaurant with your date? Fear and Panic could lead to feeling anxious all the time and not enjoying life.

Shame – Do you hide your spending or the amount of debt you have from friends, family or co-workers. You don’t want anyone to know how deep in debt you are. I mean, what would they think! Shame can lead to living an inauthentic life.

Anger – Are you having money fights with your spouse? Are you yelling at your kids or your co-workers because you can’t quit thinking about your money problems? Anger can lead to relationship issues.

Depression – You have just shut down. You can’t see a way out and your spouse doesn’t understand the pressure you’re under! You can’t deal with it anymore. Depression can lead to a whole list of mental, emotional or spiritual issues. Deardebt.com is a one of many resources for someone who is struggling with depression and mental health problems due to financial strain.

I experienced a lot of these emotions when Stephen and I were having our money issues. We had dug such a deep hole, I didn’t think we would EVER climb out. We couldn’t talk about money without getting into an argument. I was frightened and he had shut down. We were going nowhere.

The stress was unbearable and I became hopeless. This is no way to live.

You’ve Got This!

I want you to know that no matter where you are starting, YOU CAN DO IT! Your self-worth is not your net worth. Your past mistakes do not define your future. Forgive yourself and let go of the past! If you are starting your Debt reduction journey, let us know in my FB group, Started At 50. We are all there to support and encourage each other. We will not judge!

Getting back to Zero is a great feeling. You will be starting your Financial Freedom clock. This is where I was at 50 years old!

First Things First – Your Emergency Fund

Before you start to pay down your debt, you need to build a baby Emergency Fund. If you already have one, great! If not, you need an EF of $1000 in the bank. Why would I ask you to save $1000 when I’ve just spent pages telling you to pay off your debt? Because you need a safety net. Some cushion between you and life. As soon as you commit to paying off your debt, your car will break down or your refrigerator will go out. You don’t need to go deeper in debt while you are trying to pay it off.

This was one of the big problems I experienced in our dark days. We had no safety net and when life threw us a curveball, it sent us over the cliff financially.

Try to save your $1000 quickly. Have a garage sale, sell stuff on Marketplace, work some overtime or declare a “No Spend Month”. Find any way you can to get this first $1000. Then when you have a flat tire, it’s not a disaster!

How To Pay Off Your Debt

There are 3 commonly accepted methods for paying off debt. The Snowball Method, the Avalanche Method and the Hybrid Method. Let’s look at how they work and the pros and cons of each.

Snowball Method

This method is fairly simple. You list your debts starting with the smallest balance down to the largest balance. Ignore the interest rate, just rank them by balance amount. You make minimum payments on all but the smallest debt and throw everything you possibly can at the small one until it is paid off. This means any extra money you can get your hands on goes to this debt. This could be money from a side job, overtime, or by selling something.

After the first debt is paid off, take all the money you were paying on it plus the minimum payment you were making on the second debt and put it on the second debt. You keep doing this for each debt on the list until all are paid. Each time adding the money from the payments on the previous debt. This is the snowball and it gets bigger as it rolls to each debt.

Snowball Pros and Cons

The advantage (or pro) of the Snowball Method is it gives you a quick psychological boost. Paying off all your debt is not going to be a piece of cake. You didn’t get into debt overnight and you won’t get out overnight. It takes time, discipline and it will probably take some sacrifice. The Snowball Method gives you a quick win and helps you feel like you are making headway. This can give you motivation to stick to it.

The disadvantage is the Snowball Method does not take math into consideration. You may pay your first debt off quickly, but that might be a loan with a small interest rate. Meanwhile, the loan with the large interest rate, say your credit card, is treading water and accumulating interest while it waits for you to get to it.

Avalanche Method

The Avalanche Method is similar to the Snowball, but it considers the interest rate instead of loan balance. In this method, list your debts starting with the largest interest rate down to the smallest. Pay minimum payments on all but the first debt on the list. Throw all the money you can at the first debt until it is paid. Then, like in the Snowball, you add what you were paying on the first debt to the minimum payment of the second and keep going till all debts are paid.

Avalanche Pros and Cons

The pro for the Avalanche is you are considering interest rates. You save money as you pay down the loan with the largest interest rate first. As the loan balance decreases, the amount of interest being charged decreases also.

The con for the Avalanche is emotional. The loan on the top of your list may have a large balance and take months or even years to pay off. This can be discouraging to see all your other debt treading water while you work on the one.

Hybrid Method

The Hybrid Method combines the pros of the Snowball and the Avalanche. Using this method you can pay off one or two small debts first for that quick win to get you motivated. Then as you feel you have the discipline to “Stick To It”, start working on the debt with the largest interest rate. This method is a hybrid of the other two.

One note about credit cards. Your credit card debt may have the largest interest rate of anything on your list. Check into transferring your CC balance to a zero-percent card. If your credit score is high enough, you can open a card with a zero percent interest rate for a period of time (6 or 12 months). This may save you some money as you pay down your debts. WARNING: Don’t do this if you have not changed your spending habits. It will only make your problem bigger!

Choose What Is Right For You

Is there a right or wrong way to pay your debts? Probably not. As with other financial tools like Budgeting or Expense Tracking apps, pick the one that works for you. If sticking to your payoff plan may be hard for you, choose the Snowball. Pick the Avalanche if you think you can stay with it and don’t need the “pat on the back”. Not sure, try the Hybrid.

You can accelerate your journey to being debt free. You can Earn More or Spend Less. Better yet, do both.

One note about interest rates – If you have anything with a greater than 10% interest rate, this is “Hair On Fire”. Address this loan as soon as possible. If you have anything worse, like a payday loan at anywhere from 200 to 2400%, this is “Nuclear Armageddon”! Do Not pass GO, Do Not Collect $200…borrow the money from your brother if you have to. Pay this thing off TODAY!

Conclusion

No matter which method you choose, the much BIGGER point here is to Get Out Of Debt! As I said earlier, these methods are simple. The execution of the plan will take grit. It won’t be easy to turn down that invitation to go out for dinner or forego a vacation. Life may feel very restricted…for a while. Remember, this is a season. It won’t last forever and it will be SO worth it.

Exercise Your Frugal Muscle

One unexpected benefit to the hard work of paying off your debt is you are building your frugal muscle. You will need to really think about every purchase while you pay off your debts. Then when the debts are gone, you will have created your frugal muscle. You will know how to pay attention to your spending. You will be in the perfect position to start saving! And saving money is what sets you up for a great future of financial freedom.

Key Takeaway – Debt is NOT your friend. It robs your future, and more stuff won’t make you happier. Pay off your Debt as quickly as possible. It won’t be easy, but it will be worth it! Then you can start to design the future you’ve always dreamed of.

Assignment 1 – Accumulate your $1000 baby Emergency Fund if you don’t already have one. Do it NOW!

Assignment 2 – Pull out all your debts. I mean ALL of them. Make a list of loan balances, minimum payments and interest rates. Decide which pay off method is right for you. List the debts in the order needed for the pay off method you have chosen. Smallest to largest balance for the Snowball. Largest to smallest interest rate for the Avalanche or your choosing for the Hybrid.

Assignment 3 – DO IT!!! You have a plan, so NOW is the time to get started. If you have trouble starting or you just need help from a real person, email me at becky@startedat50.com. Also, don’t forget the FB group Started At 50. We can crowd-source any question you have.

Coming Soon – Managing those Credit Cards