Hello everyone! As you know I am still on vacation, but wanted to still give you something to chew on for the week. Kris who writes for debt-tips.com, submitted this guest post, and although he and I disagree on debt consolidation, we both agree that becoming and staying debt free is a good thing. I also try not to flush people out just because I disagree with them on a few issues, as I feel that there is most of the time something of value to be heard. For the most part, I think Kris has given some good advice. Enjoy!
5 Simple Ways To Pay Down Your Credit Card Bills Faster – Entirely On Your Own
It can happen to the best of us. An unexpected car bill. Medical bills that aren’t covered by insurance. Loss of a job. Even the temptation to use credit cards for something we really want (and convince ourselves that we can afford it – even when we can’t) is an easy trap to fall into.
And before you know it, you’re drowning in credit card bills! That’s the easy part. The hard part is paying off the bills once they get too big to handle. That’s how the banks make their money. And why so many of us get in way over our heads.
The good news is that there are ways to get this debt back under control – without filing bankruptcy or signing up for a debt management program. Here are 5 simple ways to pay down your credit card bills faster – entirely on your own!
1 – Pay an extra 10% each month.
Of course, paying anything more than the minimum is hard when money is tight. But you must do it. Even if it is only an extra $10 or $20 a month. Over time, this will save you a bunch of money, and get you out of debt much faster.
2 – Call for a lower interest rate.
These days this strategy is harder to accomplish. But it can still be done. Simply call up everyone you owe money to and ask for a lower interest rate. If they say “no” wait a month and try again. Or ask to speak with a supervisor. Even a few percentage points can make a big difference.
3 – Put away ALL of your credit cards – except one for emergencies.
No matter how hard it gets, if you continue using your credit cards you will never be able to pay them off. So put them in a drawer, a safe deposit box, a sealed envelope, whatever it takes. And keep one handy ONLY to use in case of emergency!
4 – Pay your credit card bills first.
Obviously, nobody wants to make paying off credit card bills a priority. We’d rather buy big screen TV’s, hi-tech cell phones, and go on fancy vacations. But you must do it anyway. And if you make it a habit to pay your credit card bills first, you’ll be less tempted to buy all those other things – that you really can’t afford anyway!
5 – Keep a written record of every expense.
Nothing will help you understand why you are stuck with all this debt faster than looking at a list of every payment you make. You’ll see all those expenses that you can live without. And you’ll then have more money to pay off your bills.
No, getting out of debt is not fun and games. It takes work. And sacrifice. And determination. But it can be done.
So set a goal for yourself to get out of debt, and STAY out of debt, and you’ll be amazed how good you will feel!
For more tips on getting out of debt and turning around your financial situation, visit www.debt-tips.com. You’ll learn the actual way I used to get completely out of debt and fix all my money problems.
All key valid points! Great post.
It’s just like putting a $20 in your wallet: once you use it the rest is gone quickly. I am so anti CC use right noe for my own purposes, but do keep one in my wallet for ER ONLY! 😉
I’m willing to bet that an “emergency” credit card still gets used. Some people have a hard time with plastic.
I was just figuring out paying an extra 10% per month on our highest credit card and it would out 16 months worth of payments!?!?! I’m so suggesting this to my boyfriend. We can definitely do this on all of our monthly payments, espcially since its only $75 more each month to do so. I have gotten so many excellent ideas from your, and many other, PF website. Thanks for the information!
Hi Becky
Pay ALL of your extra payments onto ONE card. Focus on that ONE card. Also, each month, when your CC bills drop slightly (because you’re not using them 😉 ) pay the difference between what you’re paying NOW and THEN onto the extra card. Really hammer it until you’ve paid it off. Then, move on to another credit card, using all the money you’re currently using to pay off cards, with any extra you decide you can afford always going towards that card. It’s called a snowball effect and I’m sure you can see why.
We are already snowballing. We’ve paid off 4 credit cards this year, so we are rolling $130 more into our highest interest card right now. We are going to adjust the snowball a little bit in the new year but will still be doubling our payments. We are on fire! Hahaha!
An add on to item #2 is to ask your lowest rate card if they will give you a 0% fee to balance transfer higher % debts to them.
I love the advice that Colin T has given. I think the snowball effect will work for me. My question is do I hammer the CC that has the highest balance, or pay off the small ones first then apply that money to the CC with the highest balance?
I have had enough of CC debt. The interest that I pay over the course of the year would look nice in my savings/checking account. I have learned my lesson about plastic, life is better paying with cash. Good luck everyone. We cannot continue to make CC Companies richer while we continue to get poorer because of stupid plastic.
Hi Drowning
OK here’s your lifebuoy (boy? 😉 )
First and foremost, add up all your minimum payment amounts. Then decide how much you can afford to add to that amount. The total you reach is the amount you will repay each month from now until it’s all cleared (including your mortgage, if you have one, it’s probably going to be about 6-7 years: but that’s mortgage paid off!).
As to which you pay off first – this is straightforward, but it sounds slightly complicated.
For EACH debt, divide the total amount by the minimum payment and write down the answer: this is how many months you’ll be paying the debt, assuming it doesn’t decrease (which it will for credit cards because you pay a percentage, not a fixed amount, which is what KEEPS you in debt). For example, let’s say you owe $2,000 and the minimum repayment is $40. 2000/40 = 50 so write that down. If it doesn’t divide exactly, round up: this is how many months it will take to clear the debt.
Now you have a list of debts, the current payments on them and how many months each will take to clear. The first one to repay is the one with the fewest months, so rank that 1st, then the next 2nd and so on: likely your mortgage will be the last one.
So each month HAMMER the one that ranked first. Everyone else gets their minimum payment – as it reduces, pay less, but your TOTAL repayments each month will always be the same, the excess going to the 1st – until it’s clear.
In the month that it clears, any remainder goes on 2nd. From the month after, keep hammering 2nd: this is going to come down a LOT faster than 1st, because it’s getting 1st’s payments as well AND the extra you decided you could afford.
Keep going like this and get rid of that mortgage as well. It’s only going to take 6 or 7 years. I know, the mortgage is maybe a 20- or 30-year term, but forget about that, just keep repaying.
One word about mortgages: when you repay, make sure the extra payment comes off your principle (the amount borrowed). Some companies have a habit of treating it as a prepayment. We want the actual amount on which interest is calculated to crumble before us and them, so make your regular payment as at present and then all that extra money that used to fund credit cards now pays off your mortgage.
Seriously, I’d be VERY surprised if you were not COMPLETELY debt-free by 2017.
A word about the interim. Use cash. When you spend actual folding dollars, it FEELS like cash. I know, we’re a virtual world now and cash isn’t always possible, but keep one card for using on the net (ONLY) and have a small tin next to your monitor. Whenever you use the card, put the dollars in the tin – then repay the credit card at the end of the month: this does NOT count as part of your total repayments, because it’s NEW spending. Debit cards are good as well, because the money comes straight out of the account – but cash is better: you can’t forget about 2 or 3 small purchases that amounted to over $100.
Yes, I know, it sounds ideal: what happens when the roof needs repairing? Keep ONE credit card for emergencies: and I’m talking a real emergency, not those shoes that you MUST have! 😉 … Take a tin can (eg that had soup or similar in it), peel off the label and wash it out thoroughly. Put your card in it. Fill the can with water. Put the can in the freezer. So, if there’s a real emergency, you’ll have the card to fall back on (as you’ve no savings – if you have, hammer 1st card with (all) of them): but it’s going to take half a day to get it: and it’s in metal, so microwaving is out – and it’s plastic, so the regular oven is out!
Anything else that you think you absolutely need, truth is, you probably don’t. If you see something, instead of impulse buying it, write the details in a book: and date it. 3 WHOLE days later return to the book and see if you REALLY still want it even – chances are you won’t. Think about all the shopping channel stuff you bought when they hyped you up, where is it now? Exactly. (If you still think you really absolutely need it and all your bills are up to date, including hammering debt as above, then buy it – the occasional pleasure isn’t a sin – but only if you’ve already met all of your commitments.)
One last thing: keep the original list, may be put it up on your wall. As debts are cleared, cross through it (but leave it legible, so you can see your progress).
With very best wishes
Colin
Very helpful post Colin T! I think if anyone who has debt did this, they would be golden. I know some people, however, prefer to attack the High Interest CC’s first but you could still apply this to that attack mode.
Someone who prefers to work it out precisely (ie to 4 decimal places, incorporating reduced minimum payments etc) found that this method clears faster. It’s not something I understand, but that’s the reason: the one with fewest repayments will be cleared and gone.
It might be that it’s just one fewer to worry about and then the psychological benefits of seeing those bills come in with the zero balance – ie to get that snowball rolling in the first place.
Thank you Colin T. You should teach a class on getting out of debt. The advice that you gave will work for me and am sure for others. Keep up the great advice, I will be watching. Jan. 1st the snowball effect will be put in motion.
Your knowledge is priceless 🙂 (no late fees, over the limit fees or high interest applied).
Keep on spreading the good news that we can be free from debt. It will take a lot of patience and dedication, but we have a chance to live a good life without the burden of CC debt.
Some great advice Colin! Thanks for contributing to Enemy of Debt, you are welcome to do so anytime.
I love the debt snowball method!! I personally like the smallest to largest method regardless of interest rate because that’s how we stayed motivated throughout the process. Those quick wins really do help out. I remember when we were paying off our last debt of almost $10k and it took a toll on us as far as staying motivated because so much time went by without a win. I developed a plan for that as well though to help my readers.
For the bigger debts that take longer to pay off I suggest taking a separate piece of paper, and breaking the larger debt into smaller increments. So if you owe $8,000, you can break it up into 4 $2,000 increments, or even 8 $1,000 increments. each time you pay off one of the increments, it has the same effect as paying off a smaller debt.
People sometimes get upset if someone uses a different approach to doing something than they did, but I think if someone gets out of debt it really doesn’t matter how they did it. getting out of debt rocks when you are the one that got yourself out as opposed to using debt consolidation or bankruptcy to do it. The key is to learn how to work through it yourself, at least if you plan to stay out of debt.
Again great contribution Colin!! You’re welcome here anytime!
P.S. I REALLY REALLY appreciate your interaction with my readers. Sometimes people provide a guest post without bothering to moderate comments so you going above and beyond with additional information makes you valuable to EOD and my readers! Thanks! 😀
We are to the point that our remaining credit cards are the ones with the higher balances. I am figuring out the “snowball” amount now for each one once we pay the current one off. It’s pretty cool to see that a debt snowball will be $400+ in just over 6 months. That will peg off quite a few credit cards and fast! Then off to the loans. I think it’s going to be awesome to pay $900 monthly payments on our loans, those are going to go down fast. Once all is paid off (we figure within 2 years), then we are going to save up money for a house. We want to try to save at least 1/2 of the cost of the house as a down payment. I’m not sure we can wait to have the full amount saved prior to buying but who knows, we might change our minds!
Thanks for all your tips/suggestions/motivation!
Beckey that is wonderful! The Debt Snowball is definitely a good way to work down debt. I also like your effort to come up with at least half of the cost of the house. that is a great goal to have.
I recommend (as does dave Ramsey) that people save up a fully funded emergency fund before they start saving for a house. that amount could be anywhere from 3-6 months of your expenses. That way you have a bigger buffer between you and life and your house remains a blessing instead of a curse. Doing this will also allow you to stay out of debt once you are finished paying it off, If you don’t have a proper EFund then when something happens you have no choice but to finance your way out of the mess.
Do that, and if you cannot wait to save up even half, because you saved an EFund instead—with no debt you can pay your house off much faster. Also it is recommended that you try to get a 15 year mortgage. The money you would save in interest is ridiculous!
Good luck and thanks for stopping by!
Yes, we are already working on our EF. We put $100 each week into the EF, for now, and will increase it once credit cards are paid off. Once all debts are paid off, we are going to build the remainder of the EF up to cover 6 months of expenses. Once that is built up, we are going to refocus on the down payment for a house. Quite a few of our friends have mentioned 10 and 15 year mortgages, so we are going to try for those. I also figure that, once the credit cards are paid off, my credit score will improve some more. I’m waiting until February to get my latest credit report/score to see how we are doing.