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Budget Now to Pay Off Credit Card Debt Faster
My Credit Card Debt
The average US household credit card debt is around 7,000 as of January 2014. Americans are loaded with credit-card debt. Credit card debt can suffocate a family very quickly. I know from experience. Immediately following my divorce, I found myself trying to maintain the same lifestyle I lived with my ex-husband. This meant spending money I didn't have on credit cards. I had four different credit cards with high limits and quickly reached those limits over the course of the next year. It wasn't long before I was only able to pay the minimum due each month and no longer able to charge anything. My minimum payment wasn't even covering the interest and I was actually losing ground on the credit cards even though no longer using them. It was at this point that I was working towards entering into the financial services field and was able to secure a decent paying job. I then took a long hard look at my spending habits and made drastic changes.
Before I could tackle paying them down, I had to uncover the bad spending habits that had gotten me so far into debt. I knew the obvious step was to cut out unnecessary things, spa treatments, manicures, and pedicures were first to go. Nights on the town followed right behind, along with eating out. There were many other items, but that is for another article centered around bad spending habits.
I quickly learned that you should not use credit cards to pay for things you consume quickly such as meals or vacations if you are not able to pay off the full balance within a couple of months. Spending on these types of things will quickly lead to debt as the interest continues to accrue on items already consumed. A better way to fund items consumed quickly is to set cash aside each month for these items so you can pay the bill in full. If you are really wanting to purchase something expensive, set some money aside for several weeks or months before charging it, so that you can pay the bill much quicker and avoid the interest.
The vast majority of people spend a lot of money without much thought to what they are buying. I know I fell into this group of spending money on things I didn't really need. To figure out what I was spending needlessly I wrote everything down for several months. I then went back and cut back on the things I didn't really need. For example I was spending hundreds of dollars on parking downtown in Denver, where I was working. In addition was spending money on vehicle maintenance and gas. I purchased a light rail pass and saved a ton. This is one small example of the things I was able to cut back. By writing down everything you spend, you are sure to find some areas of savings. I was shocked to see how much money I wasted on a monthly basis.
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After listing my spending and cutting out unnecessary expenses, I reviewed the rest and came up with a budget. This consisted of my income and expenses for the month. I also included my monthly minimum payments due and indicated the balance on each. I then prioritized my four cards in the order in which I wanted to pay off first. I did this by dividing the balance I owed on each with their minimum payment. The one with the highest number was my first priority.
The next step was to determine how much extra I could put towards them each month. Now that I had cut out a number of expenses I found that I had more then I realized. I decided to be aggressive and set a goal of 500 a month. It is best to be as aggressive as you can, it does get easier each month. I was in a bad situation that I wanted out of as soon as possible, so chose 500.
I then started paying. I applied the minimum payment plus the extra toward my first prioritized card first, only paying the minimum due on the other cards. Once I paid off the first card, I shifted the extra money and the amount of the minimum to the next card on my list. After had two cards done shifted both minimum payments and the extra 500 to the third and then the forth. It took me slightly more then three years to payoff all four and I am far better off then I was. Along the way if I received a bonus or extra cash would send that in too. Had I have stayed with only paying the minimum would still be in that cycle. In addition, I learned some well needed, better spending habits.
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Cut them up!!!
Get Rid of the Credit Cards
Once you have them all paid off, its important to ensure you don't get caught up in the same trap. The new spending habits you acquire should prevent that. However just in case, is better to just get rid of them. To ensure I didn't use them again, once had 0 balances, I took them all out of my purse. As my credit improved I started receiving more and more tempting offers for credit. I avoided these and only carry cash and a debit card in my purse. I also deleted all my credit card account numbers from my online accounts. I now use my Bank's Bill Pay for any online payments and use my debit card for online purchases. I quickly realized that I could live without the credit cards and closed 3 of the accounts. I kept my oldest one for emergencies. In addition to maintain my better credit. Credit agencies like to see cards with high limits and low balances. I was eventually able to purchase a house on my own, something I never imagined I could do after my divorce.
Positive reinforcement goes a long way in building a habit. We use it to teach our children or our pets, so why not use it on ourselves. As you are on your way to paying off your credit card debt and modifying your spending habits, you should still treat yourself to something extra once in a while. Keep your treats on the inexpensive end so you don't upset your budget too much, but do treat yourself along the way.
You will find that it takes being able to exercise self control. The same self control that gets you to work on time each morning, or prompts you to get in your daily exercise is the self control that you will need to stop using credit cards. This self control deserves to be rewarded. I found the biggest reward is knowing that money I bring in is mine and I don't owe any credit card companies. Now when I look at whether or not I can afford something, I usually find a way to work it out without having to stop paying other bills. The extra that I was sending to my cards is now directed towards an emergency fund, along with leaving extra in my monthly budget. Unexpected expenses don't scare me as much as they once did and I rarely dip into my emergency fund.
Anyone can enjoy that freedom, take the first step and stop using credit cards. Then work towards paying them off as you continue on your journey of paying down debt. It is a tough journey, but one well worth it!