One of the most satisfying of small victories in the home economics world is getting rid of the accumulation of credit card debt. Some debts on credit or charge card accounts are small (relatively), but some are fairly large. The average American family has about $15,000 in credit card debt. Not a small task to tackle all at once.
The worst thing you can do about it is keep paying just the minimum monthly payment. At that rate, large balances can take at least 30 to 40 years to pay off! The usual time to to pay off a modest balance on a charge card could be 5 to 10 years. At the interest rates these cards charge you, that can mean paying double or triple what your original balance was on that card.
Of course, the biggest thing to do is to get the attitude of saying “No!” to the desire to buy something when you didn’t plan for it, nor need it.
The big sale that isn’t
More than likely, you started accumulating a balance on your charge card because of some sale. It is typical that a store will incentivize you to use that card because you could “save” 20 percent or more on your entire purchase amount! Sounds like a good deal, yes? Only if you paid off the balance right away. But who has the money on hand to do that? Usually you don’t, and you hope to have the money to do that next pay period. How often has that happened?
If you looked at the actual interest charged you on your monthly statement, at somewhere between 25 and 30 percent, you could realize your discount is soon to be swallowed up by the interest you will pay over the next few months.
Forget that! It is high time to rid yourself of the credit card syndrome once and for all! You need to declare war on one of the largest enemies to your family’s financial security.
A disciplined approach
I am happy to say (but not to rub it into anyone’s face) that we have retired our fourth credit / charge card over the last 12 months. And we should have our last one paid off by early next year (2018).
How, you ask, did you do it? Well, certainly not by only paying the minimum monthly payment amount. We went concertedly above and beyond that. These things take grit and discipline.
The first thing is to commit to never using a charge card again. Not until everything is paid off, and you have a stash of shopping cash to use for just that—shopping. Then you must commit to immediately paying off any future balance with the money you have on hand, making darn sure you only spend on the card what you have available in saved funds. (That’s a point for later budget discussion.)
Or, better yet, shred those cards, and close the account, and never apply for one again.
There are three approaches you can take to eliminate this beast, depending on how desperate you are, and what resources you can afford to put into this project.
Strategy #1: Interest Added
If you have more than one card (like Lays potato chips, who can have only one?), choose one that will give you the earliest release from its grasp. That may be the lowest balance, or the highest interest rate. That last part may sound strange, but it is true.
Look at the last monthly statement of your candidate card. How much interest were you charged? When you schedule your next payment, add that amount to your minimum monthly amount. Why do this? Now you have covered your interest payment, and all of your minimum payment will go down on the principal amount. This will make your card balance gain some traction. You will have your interest covered, and as your principal amount lowers, so will your interest charged you. Then your interest amount can actually be compounded onto your principal balance month over month, if you keep it the same.
If you can afford it, why not do this to more than one of your credit cards? All of them, if you can. One thing is for sure: you MUST do something like this.
Strategy #2: Steady Extra
This strategy works much the same way, except you choose a single amount you can afford, such as $25 or $50, and apply that amount to the card in addition to the minimum monthly amount. Use this amount every month until every card is paid off. Don’t stop using this extra amount once you have the first card eliminated. Carry it over onto the next card, and so on, until they are all gone.
Strategy #3: Stacking
The idea of stacking your debt payments is fairly simple. The only thing you must realize, is that the amount you currently spend on servicing your debt will always be used for that until EVERYTHING is paid off. This has a great effect on accelerating your debt elimination, and I highly recommend this for everyone. If you have such a desperate need for some breathing room, however, this strategy may be best after a couple of cards are eliminated.
Use Strategy #1 to get started on your first card. When that is paid off, take the amount you paid on that one, or at least the minimum monthly amount, and add it to the monthly payment on your next card. This may seem similar to Strategy #2 at first, because it will feel the same for the first two cards.
When you finish the second card, take that whole amount you were paying on it and add that to your third card. Now you will start to see that snowball effect on your debt balances. Many people will see these credit cards eliminated within a few years or less by using this method.
When your credit cards are gone, use all this you were paying, and apply it to your car loan, or student loans, or equity loan.
When you are done with those, carry it over to your mortgage.
Keep on track
Your debt situation is not wholly insurmountable. Nor is your family alone in all this. If you stay the course, and continue to work consistently on eliminating your debts, you will see the progress and the liberty it will bring to your family economy. And that is worth fighting for.
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