Three Steps to Eliminate Credit Card Debt
Credit card debt relief is a hot topic right. With unemployment, a volatile stock market and the mortgage crisis, Americans everywhere are concerned about debt consolidation. It could be the one good thing that comes out of these uncertain economic times: better debt management.
If you want to know how to get rid of credit card debt there are three easy steps. The first step is to see how much money you actually owe to the credit card companies. While this is both the easiest step on your road to eliminating credit card debt, it is also the most painful for many people. Why is that? Because facing the truth about how much money you owe it’s not easy. So tonight, sit down at the table with all of your credit card bills and add them up. You need to know how much money you owe to MasterCard and Citibank and Discover. It doesn’t matter what you bought with those credit cards. Don’t let that derail you. It doesn’t matter. That is the past and we want to focus on your future. Now make a list of the money owed. Order the list in one of two ways: you can list your credit card debt from lowest dollar amount to highest dollar amount; or you can list your credit card debt from highest interest-rate to lowest interest rate. Each of these ways has the benefits. With the first one you were going to get a fairly quick win under your belt by paying off your smallest debt. With the second one you’re going to be mathematically smart about how you pay off your debt. You can’t go wrong — just make a choice because you can always change your mind later.
Now, how to get rid of debt step two: the most effective way to begin to eliminate credit card debt is to use a debt snowball. You may have heard this term before and it’s not as hard as you think it might be. In a nutshell, this is debit consolidation. You take a look at the money that you bring in every month and you look at the money that goes out to pay for things every month and you eliminate the unnecessary things into you have an extra 100 or $200 to use to create your snowball. So the same time that you’re sitting down and facing your credit card debt, you can be looking at your monthly expenses and trying to find that extra little bit of money. And it could be that you trim a little bit from several different areas. Perhaps you cancel a magazine subscription or you decide to start bringing your lunch instead of eating out, however you do it, you have got to find that extra little bit of money. As the name implies, this hundred dollars becomes the core of the snowball it gets bigger and bigger. So let’s say you chose to pay off your highest interest-rate credit card first and let’s say that the minimum payment is $85. With your debt snowball, you are now paying $185 on this credit card. And you will pay $185 a month on that credit card until it’s paid off. When that debt is done, you reach for the next highest interest-rate credit card and you had $185 to the minimum payment. Let’s say the minimum payment on credit card number two is $50 a month. When you have credit card number two paid off, your snowball is $235. Your snowball gets bigger and bigger with every debt you pay off. This is the most effective way to eliminate credit card debt.
The last step in becoming debt free is either the easiest or the hardest. While you’re paying off this credit card debt you have got to stop spending money. The biggest debt snowball in the world is not going to help if your credit card balance continues to rise at the same time you’re trying to pay cancel off. This doesn’t mean you have to live like a pauper, but you need to be very conscious of where each dollar goes. If you have not already done this, at this point create a monthly budget. You have to know where your money goes each month. This step is very similar to step one. You gather all of your monthly bills and you rate them in order of importance. At the top of the list, as you can imagine, will be food and shelter and gas. And down below it you begin to rate the other expenses. Perhaps you’ll cut your clothing budget, or your grocery budget, or the cable bill. A lot of people in this step use what’s called an envelope system. Once you’ve decided how much money you are going to spend in a month on groceries, you withdraw that amount in cash and you put it in an envelope. And when you go to the grocery store, you bring your envelope and when there’s no more cash, there are no more groceries for that month. This is a radical way to live, at least in 21st-century America, but it will ensure that you get out of debt.
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