The dangers of credit card debt
We could go on and on in the debate on whether credit card use is good or evil or easy or hard or wise or foolish. But – at the end of the day, there are a lot of people in credit card debt who want out… and they want out NOW. This post is written for those people!
Read about how I closed and shredded my credit cards and along with these additional reasons to pay off credit card debt.
If you are in over your head with credit card debt, before jumping into the arms of a credit card debt consolidation relief company, you should consider taking care of the problem yourself. If you have the proper motivation and self-discipline you can do it yourself. It may save you money, help you retain a better credit score, and make you feel better about yourself.
Look at this article as your “How To Handbook” for credit card debt reduction. Know that it is not for the weak or faint-of-heart, so if you are looking for the easy way out – look elsewhere. But… if you have passionate determination to gain control over your debt, on your terms burning inside of you; if you have had enough of the status quo and are ready to turn the tables on the credit card banks… then you are in the right place.
How to pay off credit card debt
First thing’s first. Make sure you listen to what I’m about to tell you… because I know what I’m talking about – I was in your shoes not too far back. I had credit card debt and was living paycheck to paycheck. Now I’m not.
Here’s how I did it, and how you can do it too:
- Commitment and Accountability. Since you are reading this post there is little doubt that credit card debt reduction is something you need. Do not feel bad, do not feel overwhelmed, just take a deep breath, get mad at your debt, and commit to doing something about it… for REAL this time! Once you commit, find someone you trust to help keep you accountable. This person should be someone you love and someone who loves you. Someone who has your back… yet isn’t afraid to call your bluff. It’s powerful to partner up… chances are you will need them somewhere in your debt freedom journey.
- Know There is Hope. There is hope for you, I promise. NEVER forget this… EVER! Depending on how deep you’re in it will take time and sacrifice – so don’t fool yourself into thinking this will be easy – but as long as you develop a plan you will be just fine. Setting your plan in place gives you peace and hope; because once it’s there… it’s just a matter of time.
- Take Inventory. How much do you owe? How many cards do you have? What about your significant other – are your bills together, separate, scattered about? Collect all the following information about each card and write it down: Bank name, bank phone number, account number, credit limit, interest rate, amount owed, due date. If you ever get discouraged while doing this… refer to step one – remember your commitment.
- Get on the Same Page. You need credit card help, not more harm. If you have a significant other, it is important for you to view and approach credit card debt together. Being in credit card debt is not a game and if you do not enlist the help of those closest to you, it will be MUCH harder to get out of credit card debt. Having loved ones on board is one of your biggest allies when seeking credit card relief.
- Take Control – Negotiate Your Own Debt Solution. Are creditors harassing you? Before you sign up with one of those credit card debt management services know that you can do exactly what they do relatively easily. Cut out the middle man, save your money, and call your credit card companies directly to negotiate your own solution! When you do this, make sure you request all correspondence in writing and never let them shaft you on your written copy… because they will try. Although I did not have to do this, I have been very involved in this process for my sister’s credit card debt reduction program. She is digging her way out of a lot of debt, so I know you can too. Even if it seems overwhelming, it is just a matter of getting a hold on the situation. Once you do that – getting rid of credit card debt is MUCH easier.
- Save at least $1,000 in an Emergency Fund. This is VERY important because it will buffer you against any emergencies that you may come up against while in credit card debt reduction mode. Consider the following scenario: You have no money saved, and are putting all available funds toward debt repayment when all of a sudden the transmission on your vehicle fails. What do you do? Having at least a small emergency fund will prevent you from having to put this necessary expense on another credit card. Remember, the goal is credit card debt reduction – and this buffer is necessary! To come up with the $1,000 have a garage sale, deliver pizzas at night for a month, sell some of your stuff, etc… just hurry up and come up with it so you can start repaying your credit card debt ASAP.
- Only Pay What You Can Afford. Once you negotiate debt settlements with your credit cards, just pay the monthly settlement amount each month – unless you can afford more. If you did not settle, just pay what you can afford. NEVER let the credit card banks pressure you into going without groceries or paying for housing in order to pay them more. Just figure out what you can afford to pay them, and pay them that much. Period. Be confident, because all of this is well within your consumer rights.
- Consider Peer to Peer Lending. If you still have a decent credit score (of at least 660), do what I did, consolidate credit card debt with Lending peer to peer loan. This only furthers and supports your move to take control of your own credit card debt reduction process. Not only does this allow you to bypass questionable credit card debt consolidation scams, it will also combine all your monthly payments into one single debt payment and most likely lower the debt interest rate you are paying. Make sure you only consolidate debt that is at a higher rate than you can get through Lending Club. Another benefit is that you can consolidate all types of debt with Lending Club, not just credit card debt. My Lending Club loan was a consolidation of 3 credit cards and 1 auto loan. Read more about my debt consolidation story by checking out my Lending Club Review.
- Reduce Expenses – Increase Income. Do whatever you have to do to start living on less while earning more. Living on less will increase your ability to speed up your debt reduction. Lowering your expenses is crucial because in doing so you are essentially giving yourself a raise. Save money on groceries, save money on TV bills, save money on trash bills. Use ideas like these to increase cash flow, increase credit card debt reduction payments, and increase savings. You will also benefit greatly from increasing your income. Do what you have to do. Keep that pizza delivery job you attained to build up your emergency fund, start a blog, become a dog sitter, house sitter, or baby sitter. If they pay you for it, put in overtime at work. Start a business out of your home doing something you love. As you can see there are many ways to increase income… I have just listed a few here. Be creative, get out there, and work your way out of debt!
- Save Money While You Repay Debt. Others may argue with me here, but I believe you work too hard to have 100% of your money leave you every month. Make sure that you always pay yourself something; even if the amount is small… something is better than nothing. Even if you can only save 1%, then save that 1%. Consider following my 75/25 method of debt reduction and emergency savings. I am a believer in the old adage, “pay yourself first”, even if it is only $5/week!
- Go on Autopilot. Take a deep breath again… now things are starting to feel better right? Now that you have everything in order, just let all your bills go on autopilot. Use this time to start a budget and take care of other personal finances loose ends. Continue reducing you expenses, start reading some good personal finance books, and really start building your knowledge of personal finance matters so you do not wind up in this position again. Remember that a journey of a thousand miles begins with a single step, and the tortoise always wins the race. This isn’t about huge and fast credit card debt reduction; this is about faithful and consistent credit card debt reduction!
- Commitment and Accountability. Yes, step 12 is the same as step 1. Why? Because patience, commitment, and accountability seem to be lost art forms in our modern society, yet those who are patient, consistent, and committed are the ones who always end up winning in personal finance! Do you want to be successful in credit card debt reduction? Do you want to win? Then be patient, follow this guide, stay committed, and sit back and watch as your credit card debts shrink and your savings grow. You are not alone… not only do you have your accountability partner, you also have me! I’m on the same mission as you! You can follow my monthly debt and savings updates for encouragement and motivation to continue on your own debt free adventure.
Free credit card debt ebook
Everything happens for a reason. Although I wish I never would have had to go through my credit card debt reduction experience… I do know that it happened to me so that I could help you.
Make sure you use this handbook to help you get out of credit card debt. Heck, use it as a guide to get out of debt period!
Download this free ebook on how to pay off credit card debt.
Download it, save it, print it, and share it for free. The more people we can help with this information the better!
Great post! One thing i would add – on point 9 you talk about reducing expenses and briefly touch on creating new income. I’d say that whlie your’e reducing debt this is a pretty important piece of the puzzle. If you’re creating new income to help you get out of debt – even if it’s temporary – it can help you to get out of debt a LOT faster.
Matt Jabs says
Great idea, I elaborated on earning income in point number 9.
Money Funk says
The peer-to-peer lending… I am already 65% funded since going ‘live’ this morning. Yeah! So, I totally agree #8. And the process is totally easy.
And #9 – once you get started it’s like a fire burning under you to create ways to reduce expenses (brown bagging lunch) to ways to make money (recycling, selling all your stuff); kind of addictive – in a good way.
Matt Bell says
Good stuff, Matt. I once had $20,000 of credit card debt, and I can tell you that one other step that’s really helpful is to tell someone else about your debt. Tell them how much you have, that you’re committed to going no further into debt, and that you’re committed to getting out of debt. There’s something very powerful about having someone else in this process with you, providing encouragement and accountability.
Matt Jabs says
Great idea Matt. I think I simply assumed this since my wife is always right by my side – thanks for the heads up.
I am turning number 1 and number 12 into “Commitment and Accountability.”
Financial Samurai says
I like it Matt. Just read this post. Would you say that a Credit Card is indeed a “weapon of mass financial destruction” then?
It amazes me why some are so weak wrt to Credit Cards. People know CC’s charge the highest interest rates of all debt instruments. I donno what’s up.
Matt Jabs says
I think it is just a bad national case of nonchalance. Hopefully 2010 will be a year where our people return to principles of sound money.
I agree with you about making a effort to work out your own settlement with credit card companies rather than using a debt settlement service. Those services charge for what they do and that only adds to your debt.
A good friend of mine is doing his own debt settlement, and I’m going to write a post about it soon. One caveat here, well two actually…
My friend has experience in collections and knows how to “talk shop” with creditors. He also knows when their threats are empty, and how hard he needs to push. Not everyone has that ability. It does take some sense of daring to pull it off.
The other point, if you do go it alone, make sure you get any agreements in writing before sending money. Absent a written agreement, the creditor can take your money then deny that anything was ever agreed to.
Matt Jabs says
Yes… absolutely – anytime you make any changes of record to your account, get them in writing. A lot of times the banks will not send you your written note on first request… in my experience you have to call and ask several times. Keep a log of when you call and who you talk to as well.
One of the best posts I’ve read regarding credit card debt ever. Quick and concise. This process is going to be painful, no doubt about it, but I guess that’s what one gets for being irresponsible with a credit card.
Len Penzo says
Excellent advice, Matt. Of course, that proverbial first step in the journey of a 1000 miles is the hardest but most important one.
It’s funny, but I would argue that if we drew a picture of that journey, the first step would be a very steep uphill climb – it’s not very easy for a lot of people to make an honest commitment to becoming truly financially accountable. Let’s face it, that is hard work.
The good news is the remaining 10 steps are all downhill from there. 🙂
Len Penzo dot Com
Matt Jabs says
Sounds a lot like getting my feet on the floor in the morning! Once I do that I can start my day… but just getting them on the floor is the tough part!
Credit Card Chaser says
One can certainly get out of credit card debt without using a debt consolidation company but there are definitely times when enlisting the help of someone else is a smart thing to do.
The reason why I say this is in an ideal world everyone would have the responsibility, discipline, know how, strong negotiating skills, and time to be able to dig themselves out of the hole that they are in without the help of a professional debt consolidation company but in all honesty there is a reason that people slide into massive credit card debt and many times it is because of a lack of those very same necessary characteristics outlined above.
Granted, there are many different scammy and unethical companies that promise debt consolidation help but there are a few good ones from what I have seen (although not first hand of course) so I would hesitate to use a broad brush and paint every consumer exactly the same and every debt consolidation company exactly the same.
Matt Jabs says
Point taken… I have updated the intro to the article to better reflect its aim and purpose.
Kevin @ Debteye says
It’s definitely not as hard as it seems to call your credit card company and be placed in an internal hardship programs. Some creditors will give you the same concessions that a credit counselor will (sometimes even better).
Matt Jabs says
Great tip Kevin, thanks.
Cherleen @ My Personal Finance Journey says
I believe your ebook will make a wonderful gift this Christmas, especially for friends who want to go debt-free. I will download it and give copies to my friends. I will also refer them to this article to inspire and motivate them more.
Thanks for sharing!
Matt Jabs says
Awesome Cherleen, thanks so much.