My Experience Eliminating Credit Card Debt
Paying Off $30,000 of Credit Card Debt in 6 Months
Signing up for a credit card during college may have been one of the poorest choices I have ever made. I highly doubt most 18 year olds are mature enough to handle using a credit card responsibly, but the allure was too hard to pass up. It sounds great to get what you want now and pay for it later, but after racking up $30,000 in debt, I quickly realized I was in trouble. I was making the minumum payment for years and every time my limit was raised, I spent it on something I thought I needed. My monthly payments were killing my cash flow and I was soon unable to save. I started graduate school in 2007 with close to $30,000 in credit card debt and had to start making payments to my credit card with my student loans. Upon graduating in 2010, I realized credit card debt was ruining my financial life. I had just gotten a new job, was engaged, and had student loans that I new were going to go into repayment within the year. Here are some of the steps I took to become debt free within 6 months.
Stop Using Your Credit Card
It is much easier said than done, but the first necessary step to eliminating credit card debt is to stop using your credit card. I was able to stop using my credit card during graduate school by simplifying my life. I realzied I didn't need frivolous material things and didn't have to go out buying drinks 4 nights per week. It helped that I was studying almost 7 days per week. I ended up shredding one of my credit cards and then keeping the other locked in my filing cabinet at home for true emergencies (there were none).
Develop a Plan
One of the best things I did to help me really take control of my debt was make a plan and stick to it. I determined exactly how much I would pay off every month and then set a goal of 6 months to eliminate my credit card debt. I took into account my income and expenses, learned where I could modify my spending, and was consistent and disciplined. Creating a budget was eye opening as it put into perspective my spending and it objectified ways to make changes. I signed up for an account with Mint and tracked my finances daily. By creating strict budgets and sticking to them I was able to pay down my debt much faster.
One luxury I read about and heard people discuss was borrowing money from a relative or close friend. An example may be borrowing from your spouse and paying the money back to a joint acount. Or perhaps borrow money from parents if that is an option. If you have significant credit card debt and are having a hard time paying it off, ask for help. Even if you arrange to pay it back with 10% interest, it will save you money in the long run compared to credit card APR upwards of 15%. The key here is to be responsible and pay back the debt soon and not just transfer the debt from the credit card company to your friend or family member. This option is tough, but if you act responsibly and write down a repayment plan, it may be one thing that helps get you out of debt faster.
Pay More Than The Minimum
To pay off your debt in a reasonable amount of time, you must pay more than the minimum payment. If you are unable to do this every month that is fine, but when you can, pay more than you need to. If you have $30,000 of credit card debt with an interest rate of 15%, it will take you 112 months to pay off your debt paying $500 per month. That's almost 10 years. If you pay just $100 per month more, it will take you 79 months, or about 6 1/2 years. That's saving you almost $10,000 that you could invest and put towards something you really need.
Change Your Spending Habits
An important part of me paying off my credit card debt was changing the way I spend. I started taking public transportation to work or rode my bike when possible. I stopped eating out and the new trendy restaurants because I realized there will always be a new trendy restaurant and I can wait. I bought cheaper groceries by going to the farmers market instead of specialty stores. I also reduced my monthly bills by getting rid of TV. You can always downgrade your cell phone plan and eliminate the internet and use it at the library instead. The point is to find ways to cuts costs and save. Then you can start putting much more money towards your debt.
Increase Your Income
It's tough, but try to find ways to increase your income. I started writing for a blog site about health and fitness. This was fairly easy to setup as it related to my career already. I can't say I made a lot of money, but every little bit was helpful.
I encourage you to ask everyone you know for assistance. It can be financial assistance or just advice on ways to save. I asked a few wealthy friends how they invested their money. I ran my expenses by my fiancee and my parents for advice on cost cutting. The important thing is that I took initiative and looked everywhere I could to start cutting costs and paying off my debt. Don't be discouraged if you can only pay a few extra dollars. It is important to realize that every little bit counts and the best time to start is now.
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