How To Get Out of Credit Card Debt

Credit card debt is one of the worst types of debt anyone can have.  People rarely use credit cards to earn more money, to finance an education, to grow a business, or to purchase an investment.  Instead, people buy "stuff" they don't need or could have saved money for before buying.  Additionally, credit cards are notorious for having high interests rates.  This makes credit card debt toxic.

If there is one piece of personal finance advice that I wish everyone would practice, it would be to get out of credit card debt and to stop carrying a balance from this point forward.

Unfortunately, many people up to their eye balls in credit card debt, don't know how to start paying off their credit cards.  Here is my guide for how to get out of credit card debt.

Getting Out of Credit Card Debt Is About Velocity

Many people say think getting out of debt is a marathon, not a race.  I totally disagree.  You need to be laser focused on getting out of credit card debt.  Dave Ramsey calls this gazelle intensity.

The faster you can pay off your credit cards the better the chance you will follow through and actually get them paid off.  If you don't increase your payment velocity, you run the risk of losing interest and falling off the wagon.

So, to start the process of getting out of credit card debt, commit yourself to increasing the velocity of your credit card payments.  Focus on,

• making bigger payments
• cutting spending so that you can make bigger payments
• selling items so that you can make bigger payments
• earning more so that you can make bigger payments

If you focus on doing all of this really, really quickly, you will start seeing results which will make you even more motivated to pay off credit card debts.

Quit Using Credit Cards

The first step in getting out of credit card debt is to quit using credit cards all together.  There is only one way to make sure that you don't get deeper in debt - stop using credit cards.  People who don't stop using credit cards will never get out of debt.  So say these words out loud,

I hereby promise to myself and my future that I will never use my credit card again.

If you make this pledge today, you will be taking a huge step towards getting out of debt.

Transfer Credit Card Debts To Lowest Interest Credit Card

After you have committed to stop using credit cards, one of the best ways to stop the hemorrhaging is to transfer high interest credit card debt to your lowest interest credit card.

If you don't have a high enough credit limit, call your credit card company and ask for a credit limit increase.  If you still can't consolidate your credit card debt onto your lowest interest credit card, you might have to keep more than one card.  No big deal.  You will just pay off two cards.

Start Paying Off Credit Cards

There is a lot more to learn about how to pay off your credit card debt, but at this stage, just start paying off any debt you can with any extra money you have.  The tips below will help you to increase the amount you can put towards your payments.

But, don't wait until you have the perfect plan in place.  Just start paying more to your credit card companies.  Remember this is about intensity.  You know your mission so start paying off your debt.

Make More Frequent Credit Card Payments

This is the part of the get out of debt guide where you will learn some great tactics to pay off your credit card debt faster.  Credit card interest is calculated on the average daily balance of your debt.  You can pay your principle off faster by paying your credit card company more than once a month.  Here are my favorite ways to make more frequent payments to your credit card company and thus paying less in interest and paying off your balance quicker.

• Bi-Monthly Payments - Many people are paid on a bi-monthly basis or every other week.  Make a payment to your credit card company every time you get paid.  Each payment doesn't have to be the full monthly payment amount.  You can pay half the monthly payment with each payment.

• Cut Spending - Look at all of the services you are spending money on and cut them down.  Here are some quick areas where there is money to be saved:
  • TV service
  • Phone service
  • Groceries
  • Gym memberships
  • Car payments
  • Eating out

• Sell Items to Make More Frequent Payments - One of the best ways to make more frequent payments is to sell possessions that you no longer need.  Do you have a second car that you aren't using?  Do you have a stack of books lying around the house?  Comics books? An expensive watch? Clothes that no longer fit?  Search your house high and low for anything you can live with selling.  Some great places to sell your items are eBay.com, Craigslist, or local consignment stores or pawn shops.

• Snowflake Payments - Throughout the year all of us receive monetary gifts and other irregular lump sum payments.  Instead of spending these on more stuff, make extra payments to your credit card companies.  Many people call these "snowflake payments."  One of my favorite ways to make a snowflake payment is through the use of an IRS refund check.  Instead of wasting that money, use it to pay down credit card debt.

Earn More Money To Pay Off Credit Cards Faster

This is my absolute favorite way to pay off credit card debt fast.  Go get a second job, start a small business, or find a full-time job that pays more money.  Increasing your income will make paying down your debt so much easier.  Here are some ideas for second jobs:

• House cleaning
• Lawn mowing
• Snow removal
• Retail
• Pizza delivery
• Newspaper delivery
• Carpentry
• Wash cars
• Babysitting
• Pet sitting

This is a very small list.  There are tons of part-time jobs available for hard workers.

I like to tell people to find a second job in an area that incorporates their hobbies.  If you work inside all day during your 9x5 job, but love spending your free time on the week outside, go mow lawns.  If you enjoy hanging out at a favorite bar, see if you can get a job there on the weekends.

I often joke with my wife that I would love working at Barnes & Noble.  If you love bookstores like me, then go get a part-time job in your local bookstore.

Second jobs have an added benefit.  In addition to the extra income, you will have less time to spend money.  This means that more of your income can go towards paying your credit cards off.

Debt Management

Many writer would have started their how to get out of credit card debt guide with this material.  But, I don't.

Debt management (creating budgets, writing down your expenditures, balance sheets, cash flow statements) is nice, but I don't think a critical first step to getting out of debt.  Too many people get paralyzed at this stage and then fall of the wagon.

This is the last thing I want you to do.

My thoughts on creating a budget - Don't get me wrong, I think that budget are extremely useful and for those who can stick to the process, good for you.  But, many people hate them.

Budgets are tools.  Nothing more - nothing less.  Budgets are great at helping people to prioritize where and how they spend their money.  But, I think most of us have a pretty good gut feel for where we spend money.  Sure, I am sure that we would all be surprised about where we spend some of our money.  But, creating a budget is not the first thing that needs to be done.

Focus on maniacally cutting spending.  Focus on earning more money.  Focus on making more payments to your credit card company.  If you feel that you need a budget to do this, then create a budget.  If not, don't stress out over it.  I would rather see you spend you energy cutting expenses and working more hours at your second job.

These same remarks apply to creating expense statements, cash flow statements and balance sheets.  If you find that you need them, then do them.  If not, do them when you have time.  For goodness sake, don't let them keep you from making more credit card payments and earning more money.

You probably have time to do them both, but I prioritize the other actions over these if you do not have the time.

Other Great Resources For People in Debt

If you would like to read more great resources for how to get out of debt, I highly recommend the following guides:

• Dave Ramsey's The Total Money Makeover: A Proven Plan for Financial Fitness
• Federal Trade Commission's Guide for People Knee Deep in Debt
• Yahoo Finance's How to Manage Debt & Credit

Start Taking Action Today

Let me end this how to get out of debt guide by issuing a call to action.  If you don't start taking action immediately, you will fail.  You need to aggressively pay off your debt.  This requires discipline and maniacal focus.  But, the quicker you pay down your debt, the better chances you will have in being debt free.

As you see your credit card debt total decrease, you WILL be more motivated.  You WILL cut more spending.  You WILL earn more money.  You WILL pay off your credit cards faster.  Now, go on and start paying off your credit card debt!!

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Tagged as: Credit Card Debt, Paying Off Credit Cards, Second Jobs