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Pay off credit card debt without breaking your back

Updated on March 7, 2009

You may be buried under the debt of several credit cards, with no idea how you're going to pay them all off.  You may want to save money for retirement, but payments on all these debts are cutting into your disposable income.  Maybe you want to make a big purchase, or a big down payment on a new car, but you can't get financing because of all these credit cards.  How do you stop the vicious cycle?

A disclaimer: iIf you have more than 10 cards, but with smaller balances on most of them, then the below plan can still work.  However, with 10 or more very large balances, you're holding a considerable debt load.  The advice below may not be feasible due to the volume of your debt.  It may be, but it's unlikely.  Rather than speak with a credit counselor or a bankruptcy lawyer, I suggest you get a 2nd job and use that money exclusively to pay down debt per the below instructions.  I may even suggest selling your home and renting a cheaper home or subletting to free up your income.  Given your extreme circumstances, you may need to take extreme measures to eliminate your debt.  But hopefully, for most of you, you don't have more than 8-10 credit cards with a high balance. 

The first step is to sit down and take a good, long look at your budget.  Itemize every expenditure you make each month, and figure out what you can trim.  Commit to stopping purchases on those extra lattes, cut out a restaurant night or two, cancel a magazine subscription or two, tighten up the grocery bill.  Most Americans have a lot of fat in their budgets than can easily be trimmed.

Take your credit cards, all of them, and stow them away.  You don't need to cut them up, though if you feel that is for the best, don't let me stop you.  That said, I would suggest keeping at least one, preferably the one with the lowest interest rate or one with a rewards plan that offers free items or cash for usage.  Don't use this card at all until all your cards are paid off, but keep it in mind. 

Find an extra $200 a month in your budget aside from the mortgage, bill payments and credit card payments you're currently making.  Add up the total of every credit card payment you're currently making each month, and add the extra $200 a month, to come up with a Grand Total of money to allocate towards paying down your debt. 

Take the credit card with the highest current interest rate and set that aside.  For the remaining cards, you will pay the minimum payment plus $10.  If the minimum due is $63 on a card, for example, you will pay $73.  You do this because credit agencies frown on minimum payments, but it's okay if you make a little more than the minimum payment.  Subtract these payments from your Grand Total.  The amount that's left over will be used entirely to pay the card with the largest interest rate.  Pay your cards in this manner each month until the card with the high interest rate is paid off.

Afterward, take the remaining cards with a balance and find the one with the highest interest rate, like before.  Put that aside.  Pay the others for the minimum+$10 like before, and use the rest of the Grand Total to pay the new highest-interest card.  Do not decrease the amount of your Grand Total just because you paid off the high interest card.  Keep the Grand Total the same: this will accelerate the rate at which you pay off the remaining cards. 

Repeat this process until all of your credit cards are paid off in full.  Once you do, your Grand Total of allocated money is now yours to do as you wish!  That said, I would save or invest that money, and there are various sources out there that can advise you on how to effectively do so.

Remember the card I mentioned, the one with the low interest rate or rewards plan I told you to keep in mind?  You can go ahead and use this card if you wish, with one caveat: you must pay the entire balance off each month.  This can be useful for emergency purchases or to keep the finances in your checking account free for emergencies.  This will help keep your credit rating (which will dramatically improve once your balances are paid off) strong. 

The above plan is a simple domino-style approach to paying off your credit card debt.  It's not easy to retain the discipline you will need to stick to the plan, but if you do, you can eliminate your credit card debt in full. 

Great books to help your invest and make money with your freed-up extra cash:


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      john 9 years ago

      Sound advice!

      This debt rollup strategy has helped many get out of debt for good!