Confessions of an Ex-Credit Card Addict
I got my first credit card when I was in high school with the help of my mom. She explained it would help me “build good credit,” a phrase that at 16 years old meant absolutely nothing to me. Not only did I not know what “credit” was, but I definitely didn’t care – I was getting a credit card! However, unlike the “popular girls” in my favorite TV shows and movies, my credit card wasn’t for shopping trips and manicures. I had rules, and they were simple: the credit card was only for gas and in case of emergencies. At the end of each month, I’d give my mom the money I owed, she’d pay off the balance, and I’d move on not giving the credit card a second thought.
Once I started college, I applied for another credit card. Only this time there were no self-imposed rules surrounding my spending limits and usage, no plan to ensure I was paying it off, and no mom to hold me accountable. Instead, I “responsibly” set up automatic payments to make sure that the minimum amount owed each month was paid, not realizing my “set it and forget it” strategy would come back to bite me. Fast forward a couple of years, and I had three maxed out credit cards out and a few thousand dollars-worth of debt.
After a little bit of time, some trial and error, and a lot of planning, I was finally able to pay down my debt. It was a stressful experience, but through the process I discovered a few key actions that really helped to get me back on track. And though it wasn’t easy, I’m glad I can share this knowledge with my friends and fellow millennials who may feel stuck in a similar situation. So, what is the best way to tackle credit card debt? Let’s break it down.
Stop Using It
The phrase “out of sight, out of mind” applies perfectly to credit card usage – the temptation to swipe that card goes away if it’s not easily accessible. Back in the day, this could be done by leaving the card at home, stashing it in a safe, or even freezing it in a bowl of water. Unfortunately, it’s not quite that easy anymore. With today’s technology, you also have to consider delinking your credit cards from sites and services (i.e. automatic utility payments, Amazon, Grubhub, etc.) to truly make it inaccessible.
Make Extra Payments
Once you stop using the card, it’s time to start paying it off. What many people don’t realize is that if you are only making the minimum payment required, it could take years to pay down your debt. Why? Because the minimum payment often just barely exceeds the interest accrued each month. You’re not paying off those boots you bought; you’re paying off the interest that came with them. If you really want to make a dent in outstanding debt, allocating additional money to make larger payments is necessary.
Pay Off Highest Interest Rates First
After determining how much additional money can be put toward paying down debt, it’s time to think about where the extra payments should be applied. I suggest focusing all excess payments on the card with the highest interest rate. Once that has been completely paid off, take that money you were using to pay it off and put it toward the card with the next highest interest rate. Sensing a pattern? Apply this method to every card until they’re all paid off.
If you’ve maintained a good credit score, you may be eligible for 0% balance transfer offers. By transferring your existing, outstanding debt to a card with a 0% introductory APR, you are guaranteeing that 100% of any payment made during that introductory period goes directly to paying down the principal instead of accrued interest. One thing to look out for is a high balance transfer fee. These fees are typically a percentage of the amount you transfer. You don’t want to save $500 on interest only to pay a $600 transfer fee!
From the travel points to the cash back offers, the allure of a credit card can be hard to resist, I get it. There’s nothing wrong with taking advantage of all those great rewards as long as you’re doing so responsibly. So make a plan, follow the steps, and start your journey toward a debt-free life! It feels fantastic, trust me.