Getting Out of Your Credit Card Debt

I currently have 2 credit cards wherein I am proud to say that I don’t have any outstanding balance in either of them. And I intend to let it stay that way. Yes, I still use them frequently in my purchases. But I know very well the hole credit card debts can put you into.

I have always believed that to solve a problem you have to know what caused the problem and acting upon it. It doesn’t only solve the problem but it also prevents your problem from occurring again.

 

The Credit Card Trap

So how do we really end up into the deep hole of credit card debt? I have 3 general scenarios. It may not cover all, but these are the most famous of all.

Even very small businesses accept credit cards

 

Scenario 1: Man/Woman turned to purchasing god/goddess.

Here is Jack a normal employee, with no credit cards (we were once like him, it just seems so long ago). Then like bees attracted to honey, sales agents of credit card companies somehow know of his existence and offer him credit cards. At first Jack only gets one, and doesn’t use it. But somehow, credit cards find their way to his office desk as pre-activated and ready to use. He keeps them as he sees no harm in them. Before he knows it, he already has 6 credit cards – all activated and waiting for his command.

Now when he was looking at a sports store, he spotted these nice pair of running shoes. They only cost a few bucks so he decides, what the heck, and decides to buy them. As he was about to pay he notices that he doesn’t have enough money!

He didn’t know what excuse he was about to say so as not to be too humiliated when the cashier speaks up and says, “cash or card sir?”

And we all know what happens next. He realizes he has 6 of those so called credit cards, and uses them to pay for those very nice running shoes. When he goes out of the store he can’t hide his smile on his face and can’t stop thinking how helpful his card had been.

Now I don’t have to detail what happens the following days. But whenever he sees an item he would like to buy and knows that he doesn’t have cash for it, he remembers his credit cards, and uses one of them. Surely he stops and thinks if he can afford to pay them come the bills, but he reasons out to himself that either he really needs it, or he thinks he won’t have a hard time paying them.

This scenario goes on and on and he’s quickly digging himself in a financial hole. As if it couldn’t get any worse…..

he falls in love.

And he decides, he’s going to impress her by all means.

 

Scenario 2: Man/Woman and the Payment System

Now Lois, the mild mannered reporter, has 5 credit cards whose monthly billing statements are due in different dates. One in the 9^th, Two in the 15^th, One in the 21^st, and the other at the end of the month.

She thinks that as long as all of her credit card statements are due in different dates, she can pay them all easily. What do you think?

 

Photo by *_Abhi_*

If at the first months she doesn’t notice the hardships of paying 5 billing statements even in different due dates, she’s bound to find out sooner or later. I mean, she only has two paydays right? She also has to pay for electricity, rent, or food right?

This is where the complexity of payment really comes into play. We then become victims of the payment system of credit card companies. Before you know it, your 10,000 debt has grown to 50,000 in no time, or you’ve been paying partial amounts for 1 year to your 10,000 debt and its still 10,000.

 

Scenario 3: Man/Woman and the Temptation named Zero Percent

Mark and Martha have a new home. They basically have everything they need in their home.

One day as Mark went to the mall and saw a very nice 42-inch HD Ready LCD TV. It was what he had always wanted but couldn’t really afford.

When he looked at the top of the TV however, there was a big sign which read, 0% interest for 6 or 12 months.

Image Credit: Why we need so many buttons? One is enough by Tanya Dropbear

Mark went home with a brand new 42-inch T.V.

Soon after they have a new refrigerator, washing machine, and sound system in their house. All to be paid in 12 months.

Those are just three of the most common reasons why we go into credit card debt (with number 1 as my top pick). Just imagine if they were all happening at the same time to one person. Well it can happen as those three are very associated with each other.

It has happened to me.

 

So what do I do to get out of credit card debt?

Well if you haven’t read one of the articles “What everybody should know about getting out of debt or staying out of debt”, I suggest you do so. It explains in detail what we must primarily do to be able to get out of debt (not just credit card debt) and how to stay away from it forever. The below information is useless when you don’t take into heart the message from the abovementioned article.

The first step is really obvious. Stop using them already! Don’t put yourself into more burdens! Don’t put it in your wallet anymore. Don’t reason out to yourself that it’s for emergency purposes and you won’t use them for anything that’s not useful. “Useful” is a very subjective word.

Just put your credit cards in a small container. Put in you locker and never use it again. By never carrying it around you, the temptation to buy would be much smaller. That in itself is a very big first step.

 

Knowing and Weighing payment options 

You have three main opponents when you’re trying to pay and rid your credit card debt. These are: the interest rate, due date, and the minimum payment due.

These three are like the three musketeers. If you want to defeat them you have to take them all down.

For example you owe on your credit card card 1,000 bucks. Interest rate is 3.5% per month, while the due date is tomorrow, and the minimum payment is 100.

What’s the ideal payment situation? You just pay the 1,000 bucks before the due date. You won’t have to worry about the 3.5% monthly interest rate and the minimum payment.

But we all know we aren’t in an ideal situation. When we are in a deep debt, we can’t really pay all of it. So what is the best course of action?

Pay on time and pay substantially more than the minimum.

 

What?!

 

Pay on time and pay substantially more than the minimum.

 

Its really that simple. I’m not proposing a magic solution here. I’m proposing an honest and surefire way to get you out of your credit card debt. It may be a toil and you may have already known this, but that is what you need to do.

(Now I can’t stress enough the importance again of the message in the article I’ve mentioned earlier named: “What everybody should know about getting out of debt or staying out of debt”. If you haven’t read it, please do so. As the lesson learned there goes hand in hand with this.)

Is it really that simple? Well, yes and no. Yes if you’ve learned and taken into heart the message in the article I’ve mentioned earlier – although it would still take hard work. No because as I’ve mentioned, this IS hard work. This is more than just paying on time. This is more than just paying more than the minimum amount. You would need dedication and sacrifice to successfully do this.

Lets say you have 5 credit cards with huge debts. All of which have 3.5% monthly interest (42% annually).

 

Visa 1 – 2,000

Visa 2 – 4,400

Mastercard 1 – 4,000

Master card 2 – 8,200

Platinum Visa – 10,000

 

Lets also say you have always been able to pay on time. However, you only have been able to pay a little more than the minimum. And because of this, the interest rate of 3.5% per month is making your balance stay the same - even when you are paying.

If you start to pay first Visa 1, which has the lowest debt among the five credit cards I think you would be doing the right thing. You only pay enough on the rest of the credit cards, so that their balance would not get bigger.

Sooner or later you would have paid all of your debts in Visa 1 - whereas your other credit cards’ balances have all stayed the same. You can now start with Visa 2.

Now what I’ve mentioned above is just an example. You may have a different strategy (like starting with the card with the biggest debt), or you may do it a little more different, or you may be in a different situation (like you can’t even pay the minimum on all the credit cards), but you still need to pay on time and pay substantially more than the minimum to get out of your debt.

I’ve gotten out of debt by using this method and even ended up with a good credit rating (which is the real upside of this method). Whenever I got to pay in full one credit card, I immediately cancel the card and then happily cut the credit card. I get happiness out of it - besides the fact that it won’t offer any more temptations to me.

This may sound cliche but you should always remember that although getting out of credit card debt is hard, you should never give up. Take it one step at a time…