Credit Card Debt: How To Get Rid Of It.
By Greg Mee
This method is simple, but requires some discipline.
First, you have to stop any new spending on your cards.
Second - you'll need to examine all of your spending. You'll need to know how
much extra money you'll be able to put towards paying off your cards.
Credit card companies generally determine the minimum payment to be 2 - 2.5% of
the outstanding balance. So if you owe $1,000, for example, your minimum payment
will be 20 - $25 per month.
Some part of that $25 goes to the interest on the balance, some to pay off the
actual balance. How much goes where depends on the interest rate. Your credit
card statement will give you the exact numbers.
Let's say that $20 of the $25 goes to the actual balance. To pay off $1,000 at
$20 per month will take 50 months. Just over four years. You'll also have paid
$250 in interest alone.
Here's how you pay them off:
Look at the interest rates on all your credit cards. Take the one with the
highest rate. That's the one you're going to work on first and we'll call it
After examining your spending you may have found some money to put towards your
payments. All of this extra money to pay off your card debt goes to this one
card. The idea is to pay as much extra to card #1 as you can. Until it's paid
Pay the minimum balances on all the other cards until card #1 is done.
Then take the card with the next highest interest rate and add to its payment
the total of the payment you were making to card #1. In other words, send the
regular monthly payment you used to send for card #1, plus any additional
amounts that you used to pay on card #1, plus the monthly minimum for card #2-
all to card #2. Do this until card #2 is done.
Then take the total you were paying to cards #1 and #2 and add that to the
payment on card #3, and so on.
Here's an example:
Let's say you have four, maxed out, credit cards. Each with a balance of $5,000
Say the minimum payment on each card is $100 (yours may be different) making
your monthly minimum payment total $400.
Now let's say you have $500 per month to pay these off, which you found through
analyzing all your spending.
Card #1 has the highest interest rate and you'll send $200 per month to that
card and pay the minimums ($100) on each of the others.
And you're not adding any new spending.
The extra $100 you're sending in to card #1 goes to the actual balance of the
card, not the interest. This will let you pay that card off a lot faster. You
might be able to kill this card in two years, instead of 5.
Eventually, card #1 is dead. The entire payment, $200, that you were making to
card #1 gets added to the payment on card #2, for $300 total. ($100 minimum plus
the extra $200 from card #1.)
The balance on card #2 will be less than $5,000 since you've been making your
minimum payments all along. Adding the $200 from card #1 to the payment of $100
that you've been making to card #2 will make this card go away much faster than
the first card did.
When card #2 is gone you take the $300 per month that you were paying to #1 and
#2 and add it to the payment on #3, which will now be $400/month.
When #3 is done you repeat the procedure for card #4, but now you're sending the
whole $500/month to that one card.
Obviously this system will take years, but at the end of that time you have:
* Four dead cards (hopefully you cut most of them up,)
* Spending and budgeting discipline earned from going through the whole process,
* $500/month to put into a savings account or where ever.
About the Author: Written by Greg Mee. For more help on handling credit card