If you, like many people today, want to eliminate credit card debt but you owe $5,000, $10,000, $20,000 or more on your cards, it’s easy to feel like you’ll never get out from under those balances. Credit cards are one of the top 3 reasons why Americans file for bankruptcy. You don’t have to file bankruptcy to get out from underneath those numbers, however. But you do need to come up with a debt elimination plan that you can stick to, and you need to decide to make getting out of debt a priority. If you can do that, you’re well on your way to eliminating credit card debt.
Your Debt Elimination Plan
The first step toward busting your debt is to take an honest and sometimes painful at your finances.
- Add up all credit card debt and add up the total of all of the required minimum monthly payments
- Add up all other debts and their monthly payments (mortgage or rent, medical bills, car loans, personal loans)
- Add up monthly expenses (utility bills, groceries, gas, cable bill, Internet, etc.)
- Add up monthly income from every source (income, child support, spousal support, Social Security)
Look at what you must pay out every month from all sources and subtract that from the money that comes in every month. A common problem people find is that their outgoing payments equal or exceed their income. This is why people get into credit problems in the first place. In this case, you must trim expenses and/or increase income so that you have a surplus of cash each month. If you can’t manage this, then it will be almost impossible to learn how to get rid of credit card debt. Debt counseling can help if you can’t figure out how to get your budget balanced.
Once you see exactly how much you have to spend and what’s left each month, you can create a debt elimination plan that will work within your budget. You might even find that you have some extra money that you didn’t realize was there. If you put that toward your debt, you can eliminate it even faster. One good piece of advice is to pay only the minimums on all cards but one, usually the one with the highest interest. Pay every dime you can toward that card and once it’s paid off, take that amount and apply it to your next highest card each month in addition to the minimum payment amount. Once that card’s paid off, take that total amount plus the minimum on another card and pay it until it’s gone. This method seems slow at first, but snowballs to help you eliminate credit card debt more quickly.
Faster Credit Card Debt Elimination
If you want to get out from under those balances all at once, you can consolidate credit card debt with a loan. Usually these are home equity loans that use the equity you have in your home as collateral. You’ll be able to pay off all your credit cards and make one monthly loan payment instead, usually at a much lower interest rate. This is a great option if you follow a strict budget and avoid building your credit card debt back up. Work on creating an emergency savings fund instead, so that if emergencies happen you can pay in cash and avoid using those cards.
